-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
Bz1wi4aMas8CnYQnhzBC2j5ZsK0jA1Cax1fQx5LdEz9TR4YfTIHTnNM5jTPkPugD
57dVRNOpQCRF7Ll/A0EZ1w==
UNITED STATES (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF For the Fiscal Year Ended December 31, 2005 OR TRANSITION REPORT PURSUANT TO SECTION 13 For the transition period from ____________ to ____________ Registrant, State of Incorporation, Address of Registrant, State of Incorporation, Address of 1-11299 ENTERGY CORPORATION 1-32718 ENTERGY LOUISIANA, LLC 1-10764 ENTERGY ARKANSAS, INC. 1-31508 ENTERGY MISSISSIPPI, INC. 1-27031 ENTERGY GULF STATES, INC. 0-5807 ENTERGY NEW ORLEANS, INC. 1-8474 ENTERGY LOUISIANA HOLDINGS, INC. 1-9067 SYSTEM ENERGY RESOURCES, INC. Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Entergy Corporation Common Stock, $0.01 Par Value - 207,846,657 New York Stock Exchange, Inc. Entergy Arkansas, Inc. Mortgage Bonds, 6.7% Series due April 2032 New York Stock Exchange, Inc. Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value: Entergy Louisiana, LLC Mortgage Bonds, 7.6% Series due April 2032 New York Stock Exchange, Inc. Entergy Mississippi, Inc. Mortgage Bonds, 6.0% Series due November 2032 New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Class Entergy Arkansas, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy Louisiana Holdings, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy Mississippi, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy New Orleans, Inc. Preferred Stock, Cumulative, $100 Par Value Indicate by check mark if the registrants are a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ____ No Ö Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ____ No Ö Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes __Ö
__ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Securities Exchange Act of 1934. Large Entergy Corporation Ö
Entergy Arkansas, Inc. Ö
Entergy Gulf States, Inc. Ö
Entergy Louisiana Holdings, Inc. Ö
Entergy Louisiana, LLC Ö
Entergy Mississippi, Inc. Ö
Entergy New Orleans, Inc. Ö
System Energy Resources, Inc. Ö
Indicate by check mark whether any of the registrants are a shell company (as defined in Rule 12b-2 of the Act.) Yes ____ No Ö The aggregate market value of Entergy Corporation Common Stock, $0.01 Par Value, held by non-affiliates as of the end of the second quarter of 2005, was $15.9 billion based on the reported last sale price of $75.55 per share for such stock on the New York Stock Exchange on June 30, 2005. Entergy Corporation is the sole holder of the common stock of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana Holdings, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. Entergy Louisiana Holdings, Inc. is the sole holder of the common membership interests in Entergy Louisiana, LLC. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement of Entergy Corporation to be filed in connection with its Annual Meeting of Stockholders, to be held May 12, 2006, are incorporated by reference into Parts I and III hereof. TABLE OF CONTENTS SEC Form 10-K Page i Part I. Item 1. 1 2 3 4 Part II. Item 7. 5 8 16 25 36 42 Part II. Item 6. 43 44 Part II. Item 8. 45 Part II. Item 8. 46 Part II. Item 8. 48 Part II. Item 8. 50 Part II. Item 8. 51 Part I. Item 1. 111 111 112 113 113 114 121 126 128 133 134 Part I. Item 1. 134 135 135 137 137 Part I. Item 1. 137 138 138 Part I. Item 1. 139 139 139 139 140 143 148 152 153 Part II. Item 7. 162 165 169 171 175 176 Part II. Item 8. 177 Part II. Item 8. 179 Part II. Item 8. 180 Part II. Item 8. 182 Part II. Item 6. 183 Part II. Item 7. 184 185 188 193 199 203 204 Part II. Item 8. 205 Part II. Item 8. 207 Part II. Item 8. 208 Part II. Item 8. 210 Part II. Item 6. 211 Part II. Item 7. 212 213 214 218 223 226 230 231 Part II. Item 8. 232 Part II. Item 8. 233 Part II. Item 8. 234 Part II. Item 8. 236 Part II. Item 6. 237 Part II. Item 7. 245 246 248 252 253 256 257 Part II. Item 8. 258 Part II. Item 8. 259 Part II. Item 8. 260 Part II. Item 8. 262 Part II. Item 6. 263 Part II. Item 7. 264 265 266 269 273 275 278 279 Part II. Item 8. 280 Part II. Item 8. 281 Part II. Item 8. 282 Part II. Item 8. 284 Part II. Item 6. 285 Part II. Item 7. 286 286 289 290 295 Part II. Item 8. 296 Part II. Item 8. 297 Part II. Item 8. 298 Part II. Item 8. 300 Part II. Item 6. 301 Part II. Item 8. 302 Part I. Item 2. 377 Part I. Item 3. 377 Part I. Item 4. 377 Part III. Item 10. 377 Part II. Item 5. 379 Part II. Item 6. 380 Part II. Item 7. 385 Part II. Item 7A. 380 Part II. Item 8. 380 Part II. Item 9. 380 Part II. Item 9A. 381 Part II. Item 9A. 382 Part II. Item 9B. 390 Part III. Item 10. 391 Part III. Item 11. 396 Part III. Item 12. 406 Part III. Item 13. 409 Part IV. Item 14 410 Part IV. Item 15. 413 414 422 424 S-1 E-1
This combined Form 10-K is separately filed by Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana Holdings, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representations whatsoever as to any other company. References to Entergy Louisiana are intended to apply both to Entergy Louisiana Holdings on a consolidated basis and to Entergy Louisiana, LLC. The report should be read in its entirety as it pertains to each respective registrant. No one section of the report deals with all aspects of the subject matter. Separate Item 6, 7, and 8 sections are provided for each registrant, except for the Notes to the financial statements. The Entergy Corporation Notes to the financial statements are separately presented, but the Notes to the financial statements for the other registrants are combined. These two sets of Notes are marked by headers. All other Items are combined for the registrants. FORWARD-LOOKING INFORMATION In this filing and from time to time, Entergy makes statements concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although Entergy believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Forward-looking statements involve a number of risks and uncertainties, and there are factors that could cause actual results to differ materially from those expressed or implied in the statements. Some of those factors (in addition to others described elsewhere in this report and in subsequent securities filings) include: FORWARD-LOOKING INFORMATION (Concluded) DEFINITIONS Certain abbreviations or acronyms used in the text and notes are defined below: Abbreviation or Acronym Term AEEC Arkansas Electric Energy Consumers AFUDC Allowance for Funds Used During Construction ALJ Administrative Law Judge ANO 1 and 2 Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear), owned by Entergy Arkansas APSC Arkansas Public Service Commission Board Board of Directors of Entergy Corporation Cajun Cajun Electric Power Cooperative, Inc. capacity factor Actual plant output divided by maximum potential plant output for the period City Council or Council Council of the City of New Orleans, Louisiana CPI-U Consumer Price Index - Urban DOE United States Department of Energy domestic utility companies Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively EITF FASB's Emerging Issues Task Force Energy Commodity Services Entergy's business segment that includes Entergy-Koch, LP and Entergy's non-nuclear wholesale assets business Entergy Entergy Corporation and its direct and indirect subsidiaries Entergy Corporation Entergy Corporation, a Delaware corporation Entergy-Koch Entergy-Koch, LP, a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc. Entergy Louisiana Entergy Louisiana Holdings, Inc. and Entergy Louisiana, LLC EPA United States Environmental Protection Agency EPDC Entergy Power Development Corporation, a wholly-owned subsidiary of Entergy Corporation FASB Financial Accounting Standards Board FEMA Federal Emergency Management Agency FERC Federal Energy Regulatory Commission firm liquidated damages Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset); if a party fails to deliver or receive energy, the defaulting party must compensate the other party as specified in the contract FSP FASB Staff Position Grand Gulf Unit No. 1 of Grand Gulf Steam Electric Generating Station (nuclear), 90% owned or leased by System Energy GWh Gigawatt-hour(s), which equals one million kilowatt-hours Independence Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power IRS Internal Revenue Service ISO Independent System Operator kV Kilovolt kW Kilowatt kWh Kilowatt-hour(s) DEFINITIONS (Continued) Abbreviation or Acronym Term LDEQ Louisiana Department of Environmental Quality LPSC Louisiana Public Service Commission Mcf 1,000 cubic feet of gas MMBtu One million British Thermal Units MPSC Mississippi Public Service Commission MW Megawatt(s), which equals one thousand kilowatt(s) MWh Megawatt-hour(s) Nelson Unit 6 Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States Net debt ratio Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents Net MW in operation Installed capacity owned or operated Net revenue Operating revenue net of fuel, fuel-related, and purchased power expenses; and other regulatory credits Non-Utility Nuclear Entergy's business segment that owns and operates five nuclear power plants and sells electric power produced by those plants to wholesale customers NRC Nuclear Regulatory Commission NYPA New York Power Authority OASIS Open Access Same Time Information Systems PPA Purchased power agreement production cost Cost in $/MMBtu associated with delivering gas, excluding the cost of the gas PRP Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination) PUCT Public Utility Commission of Texas PUHCA 1935 Public Utility Holding Company Act of 1935, as amended PUHCA 2005 Public Utility Holding Company Act of 2005, which repealed PUHCA 1935, among other things PURPA Public Utility Regulatory Policies Act of 1978 Ritchie Unit 2 Unit 2 of the R.E. Ritchie Steam Electric Generating Station (gas/oil) River Bend River Bend Steam Electric Generating Station (nuclear), owned by Entergy Gulf States SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards as promulgated by the FASB SMEPA South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf spark spread Dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity System Agreement Agreement, effective January 1, 1983, as modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources System Energy System Energy Resources, Inc. System Fuels System Fuels, Inc. DEFINITIONS (Concluded) Abbreviation or Acronym Term TWh Terawatt-hour(s), which equals one billion kilowatt-hours unit-contingent Transaction under which power is supplied from a specific generation asset; if the specified generation asset is unavailable as a result of forced outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power unit-contingent with Transaction under which power is supplied from a specific generation asset; if the specified generation asset is unavailable as a result of forced outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power unless the actual availability over a specified period of time is below an availability threshold specified in the contract Unit Power Sales Agreement Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf UK The United Kingdom of Great Britain and Northern Ireland U.S. Utility Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution Waterford 3 Unit No. 3 (nuclear) of the Waterford Steam Electric Generating Station, 100% owned or leased by Entergy Louisiana weather-adjusted usage Electric usage excluding the effects of deviations from normal weather White Bluff White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas ENTERGY'S BUSINESS Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail electric distribution operations. Entergy owns and operates power plants with approximately 30,000 MW of electric generating capacity, and it is the second-largest nuclear power generator in the United States. Entergy delivers electricity to 2.6 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy generated annual revenues of $10.1 billion in 2005 and had approximately 14,100 employees as of December 31, 2005. Entergy operates primarily through two business segments: U.S. Utility and Non-Utility Nuclear. In addition to its two primary, reportable, operating segments, Entergy also operates the Energy Commodity Services segment and the Competitive Retail Services business. Energy Commodity Services includes (i) Entergy-Koch, LP and (ii) Entergy's non-nuclear wholesale power marketing business. Entergy Koch is a non-operating entity, which prior to the fourth quarter of 2004, owned and operated an energy marketing/trading and gas transportation/storage business. The Competitive Retail Services business markets and sells electricity, thermal energy, and related services in competitive markets, primarily in the ERCOT region in Texas. Entergy has decided to divest the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas, and now reports this portion of the business as a discontinued operation. Entergy reports Energy Commodity Services and Competitive Retail Services as part of All Other in its segment disclosures. The following shows the principal subsidiaries and affiliates within Entergy's business segments. Companies that file reports and other information with the SEC under the Securities Exchange Act of 1934 are identified in bold-faced type. U. S. Utility Non-Utility Nuclear Other Businesses Entergy Arkansas, Inc. Entergy Nuclear Operations, Inc. Energy Commodity Services Entergy Gulf States, Inc. Entergy Nuclear Finance, Inc. Entergy Nuclear Generation Co. (Pilgrim) Entergy-Koch, LP Non-Nuclear Wholesale Assets Entergy Louisiana, LLC Entergy Nuclear FitzPatrick LLC (50% ownership) Entergy Mississippi, Inc. Entergy Nuclear Indian Point 2, LLC Entergy Power Development Corp. Entergy New Orleans, Inc. Entergy Nuclear Indian Point 3, LLC Entergy Asset Management, Inc. System Energy Resources, Inc. Entergy Nuclear Vermont Yankee, LLC Entergy Power, Inc. Entergy Operations, Inc. Entergy Nuclear, Inc. Entergy Services, Inc. Entergy Nuclear Fuels Company Competitive Retail Services System Fuels, Inc. Entergy Nuclear Nebraska LLC Entergy Solutions Ltd. Strategy Entergy aspires to achieve industry-leading total shareholder returns by leveraging the scale and expertise inherent in its core nuclear and utility operations. Entergy's scope includes electricity generation, transmission and distribution as well as natural gas transportation and distribution. Entergy focuses on operational excellence with an emphasis on safety, reliability, customer service, sustainability, cost efficiency, and risk management. Entergy also focuses on portfolio management to make periodic buy, build, hold, or sell decisions based upon its analytically-derived points of view which are continuously updated as market conditions evolve. ___________________________________________________________________________________________ Availability of SEC filings and other information on Entergy's website Entergy's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments are available without charge on its website, http://www.shareholder.com/entergy/edgar.cfm, as soon as reasonably practicable after they are filed electronically with the SEC. Entergy is providing the address to its Internet site solely for the information of investors. Entergy does not intend the address to be an active link or to otherwise incorporate the contents of the website into this report. Part I, Item 1 is continued on page 111. ENTERGY CORPORATION AND SUBSIDIARIES REPORT OF MANAGEMENT Management of Entergy Corporation and its subsidiaries has prepared and is responsible for the financial statements and related financial information included in this document. To meet this responsibility, management establishes and maintains a system of internal control designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements in accordance with generally accepted accounting principles. This system includes communication through written policies and procedures, an employee Code of Entegrity, and an organizational structure that provides for appropriate division of responsibility and the training of personnel. This system is also tested by a comprehensive internal audit program. Entergy management assesses the effectiveness of its internal control over financial reporting on an annual basis. In making this assessment, management uses the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Management acknowledges, however, that all internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance with respect to financial statement preparation and presentation. As a supplement to management's assessment, Entergy's independent auditors conduct an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting and issue an attestation report on the adequacy of management's assessment. They evaluate Entergy's internal control over financial reporting and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of the financial statements. In addition, the Audit Committee of the Board of Directors, composed solely of independent Directors, meets with the independent auditors, internal auditors, management, and internal accountants periodically to discuss internal controls, and auditing and financial reporting matters. The Audit Committee appoints the independent auditors annually, seeks shareholder ratification of the appointment, and reviews with the independent auditors the scope and results of the audit effort. The Committee also meets periodically with the independent auditors and the chief internal auditor without management present, providing free access to the Committee. Based on management's assessment of internal controls using the COSO criteria, management believes that Entergy maintained effective internal control over financial reporting as of December 31, 2005. Management further believes that this assessment, combined with the policies and procedures noted above provide reasonable assurance that Entergy's financial statements are fairly and accurately presented in accordance with generally accepted accounting principles. J. WAYNE LEONARD LEO P. DENAULT HUGH T. MCDONALD JOSEPH F. DOMINO E. RENAE CONLEY CAROLYN C. SHANKS DANIEL F. PACKER GARY J. TAYLOR THEODORE H. BUNTING, JR. JAY A. LEWIS MICHAEL D. BAKEWELL ROBERT A. MALONE
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
THE SECURITIES EXCHANGE ACT OF 1934
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number
Principal Executive Offices, Telephone Number, and
IRS Employer Identification No.
Commission
File Number
Principal Executive Offices, Telephone Number, and
IRS Employer Identification No.
(a Delaware corporation)
500 Clinton Center Drive
Clinton, Mississippi 39056
(Temporary Executive Office)
Telephone (504) 576-4000
72-1229752
(a Texas limited liability company)
446 North Boulevard
Baton Rouge, LA 70802
Telephone (225) 381-5868
75-3206126
(an Arkansas corporation)
425 West Capitol Avenue
Little Rock, Arkansas 72201
Telephone (501) 377-4000
71-0005900
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
64-0205830
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 838-6631
74-0662730
(a Louisiana corporation)
1600 Perdido Street, Building 529
New Orleans, Louisiana 70112
Telephone (504) 670-3620
72-0273040
(a Texas corporation)
10055 Grogans Mill Road
Parkwood II Building
Suite 500
The Woodlands, Texas 77380
Telephone (281) 297-3647
72-0245590
Former name and address:
ENTERGY LOUISIANA, INC.
(a Louisiana corporation)
4809 Jefferson Highway
Jefferson, Louisiana 70121
(an Arkansas corporation)
Echelon One
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
72-0752777
Registrant
Title of Class
on Which Registered
shares outstanding at February 28, 2006
Equity Units, 7.625%
Chicago Stock Exchange Inc.
Pacific Exchange Inc.
New York Stock Exchange, Inc.
Mortgage Bonds, 6.0% Series due November 2032
New York Stock Exchange, Inc.
$4.40 Dividend Series
$4.52 Dividend Series
$5.08 Dividend Series
Adjustable Rate Series B (Depository Receipts)
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
Mortgage Bonds, 7.25% Series due December 2032
New York Stock Exchange, Inc.
Preferred Stock, Cumulative, $0.01 Par Value
Preferred Stock, Cumulative, $25 Par Value
accelerated
filer
Accelerated filer
Non-accelerated filer
Reference Number
Number
Definitions
Entergy's Business
Financial Information for U.S.
Utility and Non-Utility Nuclear
Strategy
Report of Management
Entergy Corporation and
Subsidiaries
Management's Financial
Discussion and Analysis
Hurricane Katrina and Hurricane
Rita
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
New Accounting Pronouncements
Selected Financial Data -
Five-Year Comparison
Report of Independent Registered
Public Accounting Firm
Consolidated Statements of
Income For the Years Ended December 31, 2005,
2004, and 2003
Consolidated Statements of Cash
Flows For the Years Ended December 31,
2005, 2004, and 2003
Consolidated Balance Sheets,
December 31, 2005 and 2004
Consolidated Statements of
Retained Earnings, Comprehensive Income, and
Paid in Capital for the Years Ended December 31, 2005, 2004, and 2003
Notes to Consolidated Financial
Statements
U.S. Utility
Entergy Louisiana restructuring
Hurricane Katrina and Hurricane
Rita
Customers
Electric Energy Sales
Retail Rate Regulation
Property and Other Generation
Resources
Fuel Supply
Federal Regulation
Service Companies
Earnings Ratios
Non-Utility Nuclear
Property
Energy and Capacity Sales
Fuel Supply
Other Business Activities
Energy Commodity Services
Non-Nuclear Wholesale Assets
Business
Entergy-Koch, L.P.
Regulation of Entergy's
Business
PUHCA 2005
Federal Power Act
State Regulation
Regulation of the Nuclear Power
Industry
Environmental Regulation
Litigation
Research Spending
Employees
Risk Factors
Part I. Item 1A.
154
Unresolved Staff Comments
Part I. Item 1B.
161
Entergy Arkansas, Inc.
Management's Financial
Discussion and Analysis
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
New Accounting Pronouncements
Report of Independent Registered
Public Accounting Firm
Income Statements For the Years
Ended December 31, 2005, 2004, and 2003
Statements of Cash Flows For the
Years Ended December 31, 2005, 2004,
and 2003
Balance Sheets, December 31,
2005 and 2004
Statements of Retained Earnings
for the Years Ended December 31, 2005,
2004, and 2003
Selected Financial Data -
Five-Year Comparison
Entergy Gulf States, Inc.
Management's Financial
Discussion and Analysis
Hurricane Rita and Hurricane
Katrina
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
New Accounting Pronouncements
Report of Independent Registered
Public Accounting Firm
Income Statements For the Years
Ended December 31, 2005, 2004, and 2003
Statements of Cash Flows For the
Years Ended December 31, 2005, 2004,
and 2003
Balance Sheets, December 31,
2005 and 2004
Statements of Retained Earnings
and Comprehensive Income for the Years
Ended December 31, 2005, 2004, and 2003
Selected Financial Data -
Five-Year Comparison
Entergy Louisiana Holdings,
Inc. and Entergy Louisiana, LLC
Management's Financial
Discussion and Analysis
Entergy Louisiana Corporate
Restructuring
Hurricane Rita and Hurricane
Katrina
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
New Accounting Pronouncements
Entergy Louisiana Holdings,
Inc. and Subsidiaries
Report of Independent Registered
Public Accounting Firm
Consolidated Income Statements
For the Years Ended December 31,
2005,2004, and 2003
Consolidated Statements of Cash
Flows For the Years Ended December 31,
2005, 2004, and 2003
Consolidated Balance Sheets,
December 31, 2005 and 2004
Consolidated Statements of
Retained Earnings for the Years Ended December
31, 2005, 2004, and 2003
Selected Financial Data -
Five-Year Comparison
Entergy Louisiana, LLC
Report of Independent Registered Public Accounting Firm
238
Income Statement For the Year Ended December 31, 2005
Part II. Item 8.
239
Statement of Cash Flow For the Year Ended December 31, 2005
Part II. Item 8.
241
Balance Sheet, December 31, 2005
Part II. Item 8.
242
Statement of Members' Equity for the Year Ended December 31, 2005
Part II. Item 8.
244
Selected Financial Data
Part II. Item 6.
237
Entergy Mississippi, Inc.
Management's Financial
Discussion and Analysis
Hurricane Katrina
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
New Accounting Pronouncements
Report of Independent Registered
Public Accounting Firm
Income Statements For the Years
Ended December 31, 2005, 2004, and 2003
Statements of Cash Flows For the
Years Ended December 31, 2005, 2004,
and 2003
Balance Sheets, December 31,
2005 and 2004
Statements of Retained Earnings
for the Years Ended December 31, 2005,
2004, and 2003
Selected Financial Data -
Five-Year Comparison
Entergy New Orleans, Inc.
(Debtor-in-possession)
Management's Financial
Discussion and Analysis
Hurricane Katrina
Bankruptcy Proceedings
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
New Accounting Pronouncements
Report of Independent Registered
Public Accounting Firm
Income Statements For the Years
Ended December 31, 2005, 2004, and
2003
Statements of Cash Flows For the
Years Ended December 31, 2005, 2004,
and 2003
Balance Sheets, December 31,
2005 and 2004
Statements of Retained Earnings
for the Years Ended December 31, 2005,
2004, and 2003
Selected Financial Data -
Five-Year Comparison
System Energy Resources, Inc.
Management's Financial
Discussion and Analysis
Results of Operations
Liquidity and Capital Resources
Significant Factors and Known
Trends
Critical Accounting Estimates
Report of Independent Registered
Public Accounting Firm
Income Statements For the Years
Ended December 31, 2005, 2004, and 2003
Statements of Cash Flows For the
Years Ended December 31, 2005, 2004,
and 2003
Balance Sheets, December 31,
2005 and 2004
Statements of Retained Earnings
for the Years Ended December 31, 2005,
2004, and 2003
Selected Financial Data -
Five-Year Comparison
Notes to Respective Financial
Statements for the Domestic Utility Companies
and System Energy
Properties
Legal Proceedings
Submission of Matters to a Vote
of Security Holders
Directors and Executive Officers
of Entergy Corporation
Market for Registrants' Common
Equity and Related Stockholder Matters
Selected Financial Data
Management's Discussion and
Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative
Disclosures About Market Risk
Financial Statements and
Supplementary Data
Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Attestation Report of Registered
Public Accounting Firm
Other Information
Directors and Executive Officers
of the Registrants
Executive Compensation
Security Ownership of Certain
Beneficial Owners and Management
Certain Relationships and
Related Transactions
Principal Accountant Fees and
Services
Exhibits and Financial Statement
Schedules
Signatures
Consents of Independent
Registered Public Accounting Firm
Report of Independent Registered
Public Accounting Firm
Index to Financial Statement
Schedules
Exhibit Index
availability guarantees
OPERATING INFORMATION
For the Years Ended December 31, 2005, 2004, and 2003
U.S. Utility
Non-Utility Nuclear
Entergy Consolidated (a)
(In Thousands)
2005
Operating revenues
$8,526,943
$1,421,547
$10,106,247
Operating expenses
$7,186,035
$996,013
$8,314,258
Other income
$111,186
$71,827
$211,451
Interest and other charges
$364,665
$50,874
$475,604
Income taxes
$405,662
$163,865
$559,284
Loss from discontinued operations
$-
$-
($44,794)
Earnings applicable to common stock
$659,760
$282,622
$898,331
2004
Operating revenues
$8,142,808
$1,341,852
$9,685,521
Operating expenses
$6,795,146
$978,688
$8,035,349
Other income
$108,925
$78,141
$125,999
Interest and other charges
$383,032
$53,657
$477,776
Income taxes
$406,864
$142,620
$365,305
Loss from discontinued operations
$-
$-
($41)
Earnings applicable to common stock
$643,408
$245,028
$909,524
2003
Operating revenues
$7,584,857
$1,274,983
$9,032,714
Operating expenses
$6,274,830
$1,039,614
$7,527,158
Other income
($35,965)
$33,997
$325,315
Interest and other charges
$419,111
$34,460
$505,641
Income taxes
$341,044
$88,619
$497,433
Loss from discontinued operations
$-
$-
($14,404)
Cumulative effect of accounting change
($21,333)
$154,512
$137,074
Earnings applicable to common stock
$469,050
$300,799
$926,943
CASH FLOW INFORMATION
For the Years Ended December 31, 2005, 2004, and 2003
Non-Utility Nuclear
Entergy Consolidated (a)
(In Thousands)
2005
Net cash flow provided by operating activities
$973,692
$551,263
$1,467,808
Net cash flow used in investing activities
($1,709,175)
($368,497)
($1,992,608)
Net cash flow provided by (used in) financing activities
$646,588
($110,482)
$496,390
2004
Net cash flow provided by operating activities
$2,207,876
$414,518
$2,929,319
Net cash flow used in investing activities
($1,198,009)
($386,023)
($1,143,225)
Net cash flow used in financing activities
($824,579)
($37,894)
($1,671,859)
2003
Net cash flow provided by operating activities
$1,675,069
$182,524
$2,005,820
Net cash flow used in investing activities
($1,441,992)
($184,913)
($1,967,930)
Net cash flow used in financing activities
($919,983)
($6,672)
($869,130)
FINANCIAL POSITION INFORMATION
As of December 31, 2005 and 2004
U.S. Utility
Non-Utility Nuclear
Entergy Consolidated (a)
(In Thousands)
2005
Current assets
$3,182,160
$699,299
$4,056,294
Other property and investments
$1,433,300
$1,473,450
$3,213,917
Property, plant and equipment - net
$16,899,266
$2,001,727
$19,197,045
Deferred debits and other assets
$3,727,706
$713,096
$4,384,013
Current liabilities
$2,341,601
$517,847
$3,127,914
Non-current liabilities
$16,238,484
$2,254,827
$19,980,608
Shareholders' equity
$6,662,347
$2,114,898
$7,742,747
2004
Current assets
$2,292,959
$590,580
$3,077,276
Other property and investments
$1,200,246
$1,403,222
$2,995,894
Property, plant and equipment - net
$16,502,155
$1,850,481
$18,695,631
Deferred debits and other assets
$2,941,877
$687,322
$3,541,976
Current liabilities
$1,756,011
$649,281
$2,332,383
Non-current liabilities
$15,214,095
$1,832,477
$17,681,707
Shareholders' equity
$5,967,131
$2,049,847
$8,296,687
(a) In addition to the two operating segments presented here, Entergy Consolidated also includes Entergy Corporation (parent company), other business activity, and intercompany eliminations, including the Energy Commodity Services business, the Competitive Retail Services business, and earnings on the proceeds of sales of previously-owned businesses. The Energy Commodity Services business was presented as a reportable segment prior to 2005, but it did not meet the quantitative thresholds for a reportable segment in 2005 and 2004, and with the sale of Entergy-Koch's businesses in 2004, management does not expect the Energy Commodity Services business to meet the quantitative thresholds in the forseeable future. The 2004 and 2003 information in the tables above has been restated to include the Energy Commodity Services business in the Entergy Consolidated column. As a result of the Entergy New Orleans bankruptcy filing, Entergy has discontinued the consolidation of Entergy New Orleans retroactive to January
Entergy Corporation
Chief Executive Officer of Entergy Corporation
Executive Vice President and Chief Financial Officer of Entergy Corporation
Chairman, President, and Chief Executive Officer of Entergy Arkansas, Inc.
Chairman of Entergy Gulf States, Inc., President and Chief Executive Officer - Texas of Entergy Gulf States, Inc.
Chair of the Board, President, and Chief Executive Officer of Entergy Louisiana, LLC; President and Chief Executive Officer- Louisiana of Entergy Gulf States, Inc.
Chairman, President, and Chief Executive Officer of Entergy Mississippi, Inc.
Chairman, President, and Chief Executive Officer of Entergy New Orleans, Inc.
Chairman, President, and Chief Executive Officer of System Energy Resources, Inc.
Vice President and Chief Financial Officer of System Energy Resources, Inc.
Vice President and Chief Financial Officer of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc.
President of Entergy Louisiana Holdings, Inc.
Treasurer of Entergy Louisiana Holdings, Inc.
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Entergy operates primarily through two business segments: U.S. Utility and Non-Utility Nuclear.
In addition to its two primary, reportable, operating segments, Entergy also operates the Energy Commodity Services segment and the Competitive Retail Services business. Energy Commodity Services includes Entergy-Koch, LP and Entergy's non-nuclear wholesale assets business. Entergy-Koch, LP engaged in two major businesses: energy commodity marketing and trading through Entergy-Koch Trading, and gas transportation and storage through Gulf South Pipeline. Entergy-Koch sold both of these businesses in the fourth quarter of 2004, and Entergy-Koch is no longer an operating entity. The non-nuclear wholesale assets business sells to wholesale customers the electric power produced by power plants that it owns while it focuses on improving performance and exploring sales or restructuring opportunities for its power plants. Such opportunities are evaluated consistent with Entergy's market-based point-of-view. The Competitive Retail Services business markets and sells electricity, thermal energ y, and related services in competitive markets, primarily in the ERCOT region in Texas. Entergy has decided to divest the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas, and now reports this portion of the business as a discontinued operation. Entergy reports Energy Commodity Services and Competitive Retail Services as part of All Other in its segment disclosures.
Following are the percentages of Entergy's consolidated revenues and net income generated by its operating segments and the percentage of total assets held by them:
% of Revenue |
% of Net Income |
% of Total Assets |
||||||||||||||||
Segment |
2005 |
2004 |
2003 |
2005 |
2004 |
2003 |
2005 |
2004 |
2003 |
|||||||||
U.S. Utility |
84 |
84 |
84 |
74 |
72 |
52 |
82 |
80 |
79 |
|||||||||
Non-Utility Nuclear |
14 |
14 |
14 |
30 |
26 |
32 |
16 |
16 |
15 |
|||||||||
Parent Company & |
|
|
|
|
|
|
|
|
|
Hurricane Katrina and Hurricane Rita
In August and September 2005, Hurricanes Katrina and Rita caused catastrophic damage to large portions of the U.S. Utility's service territory in Louisiana, Mississippi, and Texas, including the effect of extensive flooding that resulted from levee breaks in and around the greater New Orleans area. The storms and flooding resulted in widespread power outages, significant damage to electric distribution, transmission, and generation and gas infrastructure, and the loss of sales and customers due to mandatory evacuations and the destruction of homes and businesses. Total restoration costs for the repair and/or replacement of the U.S. Utility's electric and gas facilities damaged by Hurricanes Katrina and Rita and business continuity costs are estimated to be $1.5 billion, including $835.2 million in construction expenditures and $664.8 million recorded as regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales. For instance, at Entergy New Orleans, the domestic utility company that continues to have significant lost revenue caused by Hurricane Katrina, Entergy estimates that lost net revenue due to Hurricane Katrina will total approximately $320 million through 2007. In addition, Entergy estimates that the hurricanes caused $32 million of uncollectible U.S. Utility customer receivables.
The estimated storm restoration costs also do not include the longer-term accelerated replacement of the gas distribution system in New Orleans that Entergy New Orleans expects will be necessary due to the massive salt water intrusion into the system caused by the flooding in New Orleans. The salt water intrusion is expected to shorten the life of the gas distribution system, making it necessary to replace that system over time. Entergy New Orleans currently expects the cost of the gas system replacement to be $355 million, with the project beginning in 2008 and extending for many years thereafter.
Entergy has recorded accruals for the portion of the estimated $1.5 billion of storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in the U.S. Utility's service territories and communications with local regulators, Entergy recorded assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. In December 2005, Entergy Gulf States' Louisiana jurisdiction, Entergy Louisiana, and Entergy Mississippi filed with their respective retail regulators for recovery of storm restoration costs. The filings are discussed in Note 2 to the consolidated financial statements. Because Entergy has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration cost s and incremental losses it may ultimately recover, or the timing of such recovery.
Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies.
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through Underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. There is an aggregati on limit of $1 billion for all parties insured by OIL for any one occurrence, and Entergy has been notified by OIL that it expects claims for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for each of the affected domestic utility companies, working with insurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy currently estimates that its net insurance recoveries for the losses caused by the hurricanes, including the effect of the OIL aggregation limit being exceeded, will be approximately $382 million.
In December 2005, the U.S. Congress passed and the President signed the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding for infrastructure restoration. It is uncertain how much funding, if any, will be designated for utility reconstruction, and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding.
Entergy New Orleans Bankruptcy
Because of the effects of Hurricane Katrina, on September 23, 2005, Entergy New Orleans filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Louisiana seeking reorganization relief under the provisions of Chapter 11 of the United States Bankruptcy Code (Case No. 05-17697). Entergy Corporation owns 100 percent of the common stock of Entergy New Orleans, has continued to supply general and administrative services, and has provided debtor-in-possession financing to Entergy New Orleans. Uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, however, have caused Entergy to deconsolidate Entergy New Orleans and reflect Entergy New Orleans' financial results under the equity method of accounting retroactive to January 1, 2005. Because Entergy owns all of the common stock of Entergy New Orleans, this change did not affect the amount of net income Entergy records resulting from Entergy New Orleans' operations for any current or prior period, but did result in Entergy New Orleans' net income for 2005 being presented as "Equity in earnings (loss) of unconsolidated equity affiliates" rather than its results being included in each individual income statement line item, as is the case for periods prior to 2005. Entergy reviewed the carrying value of its equity investment in Entergy New Orleans ($149.9 million as of December 31, 2005) to determine if an impairment had occurred as a result of the storm, the flood, the power outages, restoration costs, and changes in customer load. Entergy determined that as of December 31, 2005, no impairment had occurred because, as discussed above, management believes that recovery is probable. In addition to Entergy's equity investment in Entergy New Orleans, as of December 31, 2005 Entergy New Orleans owed Entergy and its subsidiaries a total of approximately $47 million in prepetition accounts payable. Entergy will continue to assess the carrying value of its investment in Enterg y New Orleans as developments occur in Entergy New Orleans' recovery efforts.
Entergy continues to work with the federal, state, and local authorities to resolve the bankruptcy in a manner that allows Entergy New Orleans' customers to be served by a financially viable entity as required by law. Key factors that will influence the timing and outcome of the Entergy New Orleans bankruptcy include:
The exclusivity period for filing a final plan of reorganization by Entergy New Orleans is currently scheduled to end on April 21, 2006, with solicitation of acceptances of the plan scheduled to be complete by June 20, 2006. If a party to the bankruptcy proceeding, including Entergy New Orleans, requests it, the bankruptcy court has the authority to extend these deadlines. In addition, the bankruptcy judge has set a date of April 19, 2006 by which creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file their proofs of claim in the bankruptcy case.
The deconsolidation of Entergy New Orleans is retroactive to January 1, 2005, and its 2005 results of operations are presented as a component of "Equity in earnings (loss) of unconsolidated equity affiliates." Transactions in 2005 between Entergy New Orleans and other Entergy subsidiaries are not eliminated in consolidation as they were in periods prior to 2005. The variance explanations for 2005 compared to 2004 in "Results of Operations" below reflect the 2004 results of operations of Entergy New Orleans as if it were deconsolidated in 2004, consistent with the 2005 presentation as "Equity in earnings (loss) of unconsolidated equity affiliates." The variance explanations for 2004 compared to 2003 are based on as reported amounts. Entergy's as reported consolidated results for 2004 and the amounts included in those consolidated results for Entergy New Orleans, which exclude inter-company items, are set forth in the table below.
For the Year Ended |
||||
|
Entergy |
|
||
|
(In Thousands) |
|||
Operating Revenues |
$9,685,521 |
($435,194) |
||
Operating Expenses: |
||||
Fuel, fuel-related expenses, and gas purchased for |
4,189,818 |
(206,240) |
||
Other operation and maintenance |
2,268,332 |
(102,451) |
||
Taxes other than income taxes |
403,635 |
(43,577) |
||
Depreciation and amortization |
893,574 |
(29,657) |
||
Other regulatory credits - net |
(90,611) |
4,670 |
||
Other operating expenses |
370,601 |
- |
||
Total Operating Expenses |
$8,035,349 |
($377,255) |
||
Other Income |
$125,999 |
($2,044) |
||
Interest and Other Charges |
$477,776 |
($15,043) |
||
Income from Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Changes |
|
|
||
Income Taxes |
$365,305 |
($16,868) |
||
Consolidated Net Income |
$933,049 |
($965) |
||
Preferred Dividend Requirements and Other |
$23,525 |
|
($965) |
* |
Reflects the entry necessary to deconsolidate Entergy New Orleans for 2004. The column includes intercompany eliminations. |
Results of Operations
Earnings applicable to common stock for the years ended December 31, 2005, 2004, and 2003 by operating segment are as follows:
Operating Segment |
|
2005 |
|
2004 |
|
2003 |
|
|
(In Thousands) |
||||
|
|
|
|
|
|
|
U.S. Utility |
|
$659,760 |
|
$643,408 |
|
$469,050 |
Non-Utility Nuclear |
|
282,623 |
|
245,029 |
|
300,799 |
Parent Company & Other Business Segments |
|
(44,052) |
|
21,087 |
|
157,094 |
Total |
|
$898,331 |
|
$909,524 |
|
$926,943 |
Following is a discussion of Entergy's income before taxes according to the business segments listed above. Earnings for 2005 were negatively affected by $44.8 million net-of-tax of discontinued operations due to the planned sale of the retail electric portion of Entergy's Competitive Retail Services business operating in the ERCOT region of Texas. This amount includes a net charge of $25.8 million, net-of-tax, related to the impairment reserve for the remaining net book value of the Competitive Retail Services business' information technology systems.
Earnings for 2004 include a $97 million tax benefit that resulted from the sale of preferred stock and less than 1% of the common stock in a subsidiary in the non-nuclear wholesale assets business; and a $36 million net-of-tax impairment charge in the non-nuclear wholesale assets business, both of which are discussed below.
Earnings for 2003 include the $137.1 million net-of-tax cumulative effect of changes in accounting principle that increased earnings in the first quarter of 2003, almost entirely resulting from the implementation of SFAS 143. Earnings were negatively affected in the fourth quarter of 2003 by voluntary severance program expenses of $122.8 million net-of-tax. As part of an initiative to achieve productivity improvements with a goal of reducing costs, primarily in the Non-Utility Nuclear and U.S. Utility businesses, in the second half of 2003 Entergy offered a voluntary severance program to employees in various departments. Approximately 1,100 employees, including 650 employees in nuclear operations from the Non-Utility Nuclear and U.S. Utility businesses, accepted the offers.
Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES" which accompanies Entergy Corporation's consolidated financial statements in this report for further information with respect to operating statistics.
U.S. UTILITY
The increase in earnings for the U.S. Utility from $643 million in 2004 to $660 million in 2005 was primarily due to higher net revenue and lower depreciation and amortization expenses, partially offset by lower other income, including equity in earnings of unconsolidated equity affiliates related to Entergy New Orleans, and higher taxes other than income taxes.
The increase in earnings for the U.S. Utility from $469 million in 2003 to $643 million in 2004 was primarily due to the following:
Net Revenue
Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2005 to 2004.
Amount |
||
(In Millions) |
||
2004 net revenue |
$4,010.3 |
|
Price applied to unbilled sales |
40.8 |
|
Rate refund provisions |
36.4 |
|
Volume/weather |
3.6 |
|
2004 deferrals |
(15.2) |
|
Other |
(0.5) |
|
2005 net revenue |
$4,075.4 |
The price applied to unbilled sales variance resulted primarily from an increase in the fuel cost component included in the price applied to unbilled sales. The increase in the fuel cost component is attributable to an increase in the market prices of natural gas and purchased power. See "Critical Accounting Estimates - - Unbilled Revenue" and Note 1 to the consolidated financial statements for further discussion of the accounting for unbilled revenues.
The rate refund provisions variance is due primarily to accruals recorded in 2004 for potential rate action at Entergy Gulf States and Entergy Louisiana.
The 2004 deferrals variance is due to the deferrals related to Entergy's voluntary severance program, in accordance with a stipulation with the LPSC staff. The deferrals are being amortized over a four-year period effective January 2004.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues include an increase in fuel cost recovery revenues of $586.3 million resulting from increases in the market prices of purchased power and natural gas. As such, this revenue increase is offset by increased fuel and purchased power expenses. The price applied to unbilled sales and the rate refund provisions variances, discussed above, and an increase in gross wholesale revenue also contributed to the increase in gross operating revenues. Gross wholesale revenues increased $84.2 million primarily due to an increase in the average price of energy available for resale.
Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits decreased primarily due to the following:
The decrease is partially offset by $24.8 million of higher deferrals of capacity charges that are not currently recovered through base rates but are expected to be recovered in the future. See Note 2 to the consolidated financial statements for a discussion of the formula rate plan filings that will be effective in 2006 for the 2005 test year for Entergy Louisiana and the Louisiana jurisdiction of Entergy Gulf States.
2004 Compared to 2003
Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2004 to 2003.
Amount |
||
(In Millions) |
||
2003 net revenue |
$4,214.5 |
|
Volume/weather |
68.3 |
|
Summer capacity charges |
17.4 |
|
Base rates |
10.6 |
|
Deferred fuel cost revisions |
(46.3) |
|
Price applied to unbilled sales |
(19.3) |
|
Other |
(1.2) |
|
2004 net revenue |
$4,244.0 |
The volume/weather variance resulted primarily from increased usage, partially offset by the effect of milder weather on sales during 2004 compared to 2003. Billed usage increased a total of 2,261 GWh in the industrial and commercial sectors.
The summer capacity charges variance was due to the amortization in 2003 at Entergy Gulf States and Entergy Louisiana of deferred capacity charges for the summer of 2001. Entergy Gulf States' amortization began in June 2002 and ended in May 2003. Entergy Louisiana's amortization began in August 2002 and ended in July 2003.
Base rates increased net revenue due to a base rate increase at Entergy New Orleans that became effective in June 2003.
The deferred fuel cost revisions variance resulted primarily from a revision in 2003 to an unbilled sales pricing estimate to more closely align the fuel component of that pricing with expected recoverable fuel costs at Entergy Louisiana. Deferred fuel cost revisions also decreased net revenue due to a revision in 2004 to the estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider.
The price applied to unbilled sales variance resulted from a decrease in fuel price in 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs. See "Critical Accounting Estimates - - Unbilled Revenue" and Note 1 to the consolidated financial statements for further discussion of the accounting for unbilled revenues.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues include an increase in fuel cost recovery revenues of $475 million and $18 million in electric and gas sales, respectively, primarily due to higher fuel rates in 2004 resulting from increases in the market prices of purchased power and natural gas. As such, this revenue increase is offset by increased fuel and purchased power expenses.
Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits increased primarily due to the following:
Other Income Statement Variances
2005 Compared to 2004
Other operation and maintenance expenses increased slightly from $1.467 billion in 2004 to $1.471 billion in 2005. The variance includes the following:
Taxes other than income taxes increased from $300.7 million in 2004 to $321.9 million in 2005 primarily due to higher employment taxes and higher assessed values for ad valorem tax purposes in 2005.
Depreciation and amortization expenses decreased from $794.1 million in 2004 to $783.8 million in 2005 primarily due to a change in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005.
Other income decreased from $134 million in 2004 to $111.2 million in 2005 primarily due to:
The decrease was partially offset by an increase of $35.3 million in interest and dividend income due to both the proceeds from the radwaste settlement, which is discussed further in "Significant Factors and Known Trends - Central States Compact Claim," and increased interest on temporary cash investments.
2004 Compared to 2003
Other operation and maintenance expenses decreased from $1.613 billion in 2003 to $1.569 billion in 2004 primarily due to voluntary severance program accruals of $99.8 million in 2003 partially offset by an increase of $30.5 million as a result of higher customer service support costs in 2004 and an increase of approximately $33 million as a result of higher benefits costs in 2004. See "Critical Accounting Estimates - Pension and Other Retirement Benefits" and Note 10 to the consolidated financial statements for further discussion of benefit costs.
Depreciation and amortization expenses increased from $797.6 million in 2003 to $823.7 million in 2004 primarily due to higher depreciation of Grand Gulf due to a higher scheduled sale-leaseback principal payment in addition to an increase in plant in service.
Other income (deductions) changed from ($36.0 million) in 2003 to $108.9 million in 2004 primarily due to the following:
Interest on long-term debt decreased from $433.5 million in 2003 to $390.7 million in 2004 primarily due to the net retirement and refinancing of long-term debt in 2003 and the first six months of 2004. See Note 5 to the consolidated financial statements for details on long-term debt.
NON-UTILITY NUCLEAR
Following are key performance measures for Non-Utility Nuclear:
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Net MW in operation at December 31 |
4,105 |
|
4,058 |
|
4,001 |
Average realized price per MWh |
$42.39 |
|
$41.26 |
|
$39.38 |
Generation in GWh for the year |
33,539 |
|
32,524 |
|
32,379 |
Capacity factor for the year |
93% |
|
92% |
|
92% |
2005 Compared to 2004
The increase in earnings for Non-Utility Nuclear from $245 million in 2004 to $282.6 million in 2005 was primarily due to the following:
The increase in earnings was partially offset by the following:
2004 Compared to 2003
The decrease in earnings for Non-Utility Nuclear from $300.8 million in 2003 to $245 million in 2004 was primarily due to the $154.5 million net-of-tax cumulative effect of a change in accounting principle that increased earnings in the first quarter of 2003 upon implementation of SFAS 143. See "Critical Accounting Estimates - - Nuclear Decommissioning Costs" below for discussion of the implementation of SFAS 143. Earnings before the cumulative effect of accounting change increased by $98.7 million primarily due to the following:
Partially offsetting this increase were the following:
PARENT COMPANY & OTHER BUSINESS SEGMENTS
Sales of Entergy-Koch Businesses
In the fourth quarter of 2004, Entergy-Koch sold its energy trading and pipeline businesses to third parties. Entergy-Koch will continue in existence pending final receipt of the purchase price. In 2004, Entergy received $862 million of the sales proceeds in the form of a cash distribution by Entergy-Koch. Entergy ultimately expects to receive total net cash distributions exceeding $1 billion. Entergy expects to record an approximate $60 million net-of-tax gain when the remainder of the proceeds are received in 2006.
Entergy Corporation has guaranteed up to 50% of Entergy-Koch's indemnification obligations to the purchasers. However, Entergy does not expect any material claims under these indemnification obligations.
Results of Operations
2005 Compared to 2004
The decrease in earnings for Parent Company & Other Business Segments from $21.1 million in earnings to a $44.1 million loss was primarily due to the following:
These decreases were partially offset by the following:
2004 Compared to 2003
The decrease in earnings for Parent Company & Other Business Segments from $157.1 million to $21.1 million was primarily due to:
Partially offsetting the decrease in earnings was the following:
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 36.7%, 28.2%, and 37.9%, respectively. See Note 3 to the consolidated financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rates. The lower effective income tax rate in 2004 is primarily due to the tax benefits resulting from the Entergy Asset Management stock sale discussed above.
Liquidity and Capital Resources
This section discusses Entergy's capital structure, capital spending plans and other uses of capital, sources of capital, and the cash flow activity presented in the cash flow statement.
Liquidity Effects of Hurricane Katrina and Hurricane Rita
As discussed above, Hurricanes Katrina and Rita impacted Entergy's service territory. In addition to the direct costs caused by the storms, Hurricanes Katrina and Rita have had other impacts that have affected the U.S. Utility's liquidity position. The Entergy New Orleans bankruptcy caused fuel and power suppliers to increase their scrutiny of the remaining domestic utility companies with the concern that one of them could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power prices, thereby increasing the U.S. Utility's ongoing costs, which consumed available credit lines more quickly and in some instances required the posting of additional collateral. The U.S. Utility managed through these events thus far, adequately supplied the Entergy System with fuel and power, and as a result of steps taken by it regarding its storm costs expects to have adequate liquidity and credit to continue supplying the Entergy System with fuel and power. The Non-Utility Nuclear business also has had to post increased collateral (principally in the form of Entergy Corporation guarantees) due to rising fuel and power prices, and it has had adequate liquidity to meet that demand.
After the hurricanes, Entergy implemented a new financing plan that sourced $2.5 billion through a combination of debt and equity units intended to provide adequate liquidity and capital resources to Entergy and its subsidiaries while storm restoration cost recovery is pursued. In addition, the plan is intended to provide adequate liquidity and capital resources to support Non-Utility Nuclear and the Competitive Retail Services business. The plan, which Entergy accomplished primarily in the fourth quarter 2005, included 1) increasing Entergy's credit revolver capacity by establishing a new $1.5 billion Entergy Corporation facility; 2) issuing $0.5 billion of equity units; 3) issuing approximately $0.5 billion of new debt at various utility operating companies; and 4) providing capital in the amount of $300 million from Entergy Corporation to Entergy Gulf States.
Debtor-in-Possession Credit Agreement
On September 26, 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility to provide funding to Entergy New Orleans during its business restoration efforts. On December 9, 2005, the bankruptcy court issued its final order approving the DIP Credit Agreement. The indenture trustee of Entergy New Orleans' first mortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee filing its notice of appeal, Entergy New Orleans, Entergy Corporation, and the indenture trustee filed with the bankruptcy court a motion to approve a settlement among the parties. The settlement would result in the dismissal of the indenture trustee's appeal. The settlement is set for hearing in the bankruptcy court on March 22, 2006.
The credit facility provides for up to $200 million in loans. These funds were requested to enable Entergy New Orleans to meet its liquidity needs, including employee wages and benefits and payments under power purchase and gas supply agreements, and to continue its efforts to repair and restore the facilities needed to serve its electric and gas customers. The facility enables Entergy New Orleans to request funding from Entergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. As of December 31, 2005, Entergy New Orleans had $90 million of outstanding borrowings under the DIP credit agreement. Management currently expects the bankruptcy court-authorized funding level to be sufficient to fund Entergy New Orleans' expected level of operations through 2006.
Borrowings under the DIP credit agreement are due in full, and the agreement will terminate, at the earliest of (i) August 23, 2006, or such later date as Entergy Corporation shall agree to in its sole discretion, (ii) the acceleration of the loans and the termination of the DIP credit agreement in accordance with its terms, (iii) the date of the closing of a sale of all or substantially all of Entergy New Orleans' assets pursuant to section 363 of the United States Bankruptcy Code or a confirmed plan of reorganization, or (iv) the effective date of a plan of reorganization in Entergy New Orleans' bankruptcy case.
As security for Entergy Corporation as the lender, the terms of the December 9, 2005 bankruptcy court order provide that all borrowings by Entergy New Orleans under the DIP Credit Agreement are: (i) entitled to superpriority administrative claim status pursuant to section 364(c)(1) of the Bankruptcy Code; (ii) secured by a perfected first priority lien on all property of Entergy New Orleans pursuant to sections 364(c)(2) and 364(d) of the Bankruptcy Code, except on any property of Entergy New Orleans subject to valid, perfected, and non-avoidable liens of the lender on Entergy New Orleans' $15 million credit facility; and (iii) secured by a perfected junior lien pursuant to section 364(c)(3) of the Bankruptcy Code on all property of Entergy New Orleans subject to valid, perfected, and non-avoidable liens in favor of the lender on Entergy New Orleans' $15 million credit facility that existed as of the date Entergy New Orleans filed its bankruptcy pet ition.
The interest rate on borrowings under the DIP credit agreement will be the average interest rate of borrowings outstanding under Entergy Corporation's $2 billion revolving credit facility, which was approximately 4.7% per annum at December 31, 2005.
Capital Structure
Entergy's capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital percentage from 2004 to 2005 is the result of increased debt outstanding due to additional borrowings on Entergy Corporation's $2 billion revolving credit facility, additional debt issuances, including Entergy Corporation's equity units issuance, along with a decrease in shareholders' equity, primarily due to repurchases of common stock.
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Net debt to net capital at the end of the year |
|
51.5% |
|
45.3% |
|
45.9% |
Effect of subtracting cash from debt |
|
1.6% |
|
2.1% |
|
1.6% |
Debt to capital at the end of the year |
|
53.1% |
|
47.4% |
|
47.5% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, preferred stock with sinking fund, and long-term debt, including the currently maturing portion. Capital consists of debt, shareholders' equity, and preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy's financial condition.
Long-term debt, including the currently maturing portion, makes up substantially all of Entergy's total debt outstanding. Following are Entergy's long-term debt principal maturities as of December 31, 2005 by operating segment. The figures below include principal payments on the Entergy Louisiana and System Energy sale-leaseback transactions, which are included in long-term debt on the balance sheet.
Long-term debt maturities |
|
2006 |
|
2007 |
|
2008 |
|
2009-2010 |
|
after 2010 |
(In Millions) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
U.S. Utility |
|
$23 |
|
$93 |
|
$802 |
|
$746 |
|
$4,705 |
Non-Utility Nuclear |
|
81 |
|
80 |
|
20 |
|
42 |
|
151 |
Parent Company and Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
$104 |
|
$173 |
|
$1,094 |
|
$2,115 |
|
$5,442 |
Note 5 to the consolidated financial statements provides more detail concerning long-term debt.
In May 2005, Entergy Corporation terminated its two separate, revolving credit facilities, a $500 million five-year credit facility and a $965 million three-year credit facility. At that time, Entergy Corporation entered into a $2 billion five-year revolving credit facility, which expires in May 2010. As of December 31, 2005, $785 million in borrowings were outstanding on this facility.
In December 2005, Entergy Corporation entered into a $1.5 billion three-year revolving credit facility, which expires in December 2008. As of December 31, 2005, no borrowings were outstanding on this facility.
Entergy also has the ability to issue letters of credit against the total borrowing capacity of both the three-year and the five-year credit facilities, and $239.5 million of letters of credit had been issued against the five-year facility at December 31, 2005.
Following is a summary of the borrowings outstanding and capacity available under these facilities as of December 31, 2005.
|
|
|
Letters |
Capacity |
||||
(In Millions) | ||||||||
5-Year Facility |
$2,000 |
$785 |
$240 |
$975 |
||||
3-Year Facility |
$1,500 |
$- |
$- |
$1,500 |
Entergy Corporation's credit facilities require it to maintain a consolidated debt ratio of 65% or less of its total capitalization. If Entergy fails to meet this debt ratio, or if Entergy or the domestic utility companies (other than Entergy New Orleans) default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the credit facilities' maturity dates may occur.
Capital lease obligations, including nuclear fuel leases, are a minimal part of Entergy's overall capital structure, and are discussed further in Note 9 to the consolidated financial statements. Following are Entergy's payment obligations under those leases:
|
2006 |
|
2007 |
|
2008 |
|
2009-2010 |
|
after 2010 |
|
(In Millions) |
||||||||
Capital lease payments, including nuclear fuel leases |
|
|
|
|
|
|
|
|
|
Notes payable includes borrowings outstanding on credit facilities with original maturities of less than one year. Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each have 364-day credit facilities available as follows:
|
|
|
|
Amount of |
|
Amount Drawn as of |
|
|
|
|
|
|
|
Entergy Arkansas |
|
April 2006 |
|
$85 million (a) |
|
- |
Entergy Louisiana |
April 2006 |
$85 million (a) |
$40 million |
|||
Entergy Louisiana |
|
May 2006 |
|
$15 million (b) |
|
- |
Entergy Mississippi |
|
May 2006 |
|
$25 million |
|
- |
(a) |
The combined amount borrowed by Entergy Arkansas and Entergy Louisiana under these facilities at any one time cannot exceed $85 million. Entergy Louisiana granted a security interest in its receivables to secure its $85 million facility. |
(b) |
The combined amount borrowed by Entergy Louisiana under its $15 million facility and by Entergy New Orleans under a $15 million facility that it has with the same lender cannot exceed $15 million at any one time. Because Entergy New Orleans' facility is fully drawn, no capacity is currently available on Entergy Louisiana's facility. |
Operating Lease Obligations and Guarantees of Unconsolidated Obligations
Entergy has a minimal amount of operating lease obligations and guarantees in support of unconsolidated obligations. Entergy's guarantees in support of unconsolidated obligations are not likely to have a material effect on Entergy's financial condition or results of operations. Following are Entergy's payment obligations as of December 31, 2005 on non-cancelable operating leases with a term over one year:
|
2006 |
|
2007 |
|
2008 |
|
2009-2010 |
|
after 2010 |
|
(In Millions) |
||||||||
|
|
|
|
|
|
|
|
|
|
Operating lease payments |
$95 |
|
$77 |
|
$63 |
|
$88 |
|
$196 |
The operating leases are discussed more thoroughly in Note 9 to the consolidated financial statements.
Summary of Contractual Obligations of Consolidated Entities
Contractual Obligations |
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
after 2010 |
|
Total |
|
|
(In Millions) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
$104 |
|
$1,267 |
|
$2,115 |
|
$5,442 |
|
$8,928 |
Capital lease payments (2) |
|
$133 |
|
$172 |
|
$- |
|
$2 |
|
$307 |
Operating leases (2) |
|
$95 |
|
$140 |
|
$88 |
|
$196 |
|
$519 |
Purchase obligations (3) |
|
$1,012 |
|
$1,507 |
|
$1,109 |
|
$643 |
|
$4,271 |
(1) |
Long-term debt is discussed in Note 5 to the consolidated financial statements. |
(2) |
Capital lease payments include nuclear fuel leases. Lease obligations are discussed in Note 9 to the consolidated financial statements. |
(3) |
Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. Approximately 99% of the total pertains to fuel and purchased power obligations that are recovered in the normal course of business through various fuel cost recovery mechanisms in the U.S. Utility business. |
In addition to these contractual obligations, Entergy expects to contribute $349 million to its pension plans and $60 million to other postretirement plans in 2006. $109 million of the pension plan contribution was made in January 2006. $107 million of this contribution was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act.
Capital Funds Agreement
Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to:
Capital Expenditure Plans and Other Uses of Capital
Following are the amounts of Entergy's planned construction and other capital investments by operating segment for 2006 through 2008, excluding Entergy New Orleans:
Planned construction and capital investments |
|
2006 |
|
2007 |
|
2008 |
|
|
|
|
(In Millions) |
||||
|
|
|
|
|
|
|
|
Maintenance Capital: |
|
|
|
|
|
|
|
|
U.S. Utility |
|
$604 |
|
$713 |
|
$719 |
|
Non-Utility Nuclear |
|
62 |
|
64 |
|
50 |
|
Parent and Other |
|
2 |
|
2 |
|
2 |
|
|
|
668 |
|
779 |
|
771 |
Capital Commitments: |
|
|
|
|
|
|
|
|
U.S. Utility |
|
277 |
|
203 |
|
301 |
|
Non-Utility Nuclear |
|
143 |
|
96 |
|
86 |
|
Parent and Other |
|
6 |
|
6 |
|
5 |
|
|
|
426 |
|
305 |
|
392 |
Total |
|
$1,094 |
$1,084 |
$1,163 |
In addition to the planned spending in the table above, the U.S. Utility, excluding Entergy New Orleans, also expects to pay for $310 million of capital investments in 2006 related to Hurricane Katrina and Rita restoration work that have been accrued as of December 31, 2005.
Entergy New Orleans' planned capital expenditures for the years 2006-2008 total $93 million, and Entergy New Orleans expects to pay for $46 million of capital investments in 2006 related to Hurricane Katrina and Rita restoration work that have been accrued as of December 31, 2005.Maintenance Capital refers to amounts Entergy plans to spend on routine capital projects that are necessary to support reliability of its service, equipment, or systems and to support normal customer growth.
Capital Commitments refers to non-routine capital investments for which Entergy is either contractually obligated, has Board approval, or is otherwise required to make pursuant to a regulatory agreement or existing rule or law. Amounts reflected in this category include the following:
From time to time, Entergy considers other capital investments as potentially being necessary or desirable in the future, including additional nuclear plant power uprates, generation supply assets, various transmission upgrades, environmental compliance expenditures, or investments in new businesses or assets. Because no contractual obligation, commitment, or Boardapproval exists to pursue these investments, they are not included in Entergy's planned construction and capital investments. These potential investments are also subject to evaluation and approval in accordance with Entergy's policies before amounts may be spent. In addition, Entergy's capital spending plans do not include spending for transmission upgrades requested by merchant generators, other than projects currently underway.
Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of business restructuring, regulatory constraints, environmental regulations, business opportunities, market volatility, economic trends, and the ability to access capital.
Dividends and Stock Repurchases
Declarations of dividends on Entergy's common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy's common stock dividends based upon Entergy's earnings, financial strength, and future investment opportunities. At its January 2006 meeting, the Board declared a dividend of $0.54 per share. In 2005, Entergy paid approximately $453.5 million in cash dividends on its common stock.
In accordance with Entergy's stock-based compensation plan, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy's common stock. According to the plan, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. Entergy's management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans. In addition to this authority, the Board approved a program under which Entergy was authorized to repurchase up to $1.5 billion of its common stock through 2006. The amount of repurchases under the program may vary as a result of material changes in business results or capital spending, or as a result of material new investment opportunities. As a result of Hurricanes Katrina and Rita, the $1.5 billion share repurchase program was suspended, and the Board has extended authorization for completion of the plan throu gh 2008. Entergy has $400 million of authority remaining under the $1.5 billion plan. In 2005, Entergy repurchased 12,280,500 shares of common stock under both programs for a total purchase price of $878.2 million.
Sources of Capital
Entergy's sources to meet its capital requirements and to fund potential investments include:
The majority of Entergy's internally generated funds come from the U.S. Utility. Circumstances such as weather patterns, price fluctuations, and unanticipated expenses, including unscheduled plant outages and storms, could affect the level of internally generated funds in the future. In the following section, Entergy's cash flow activity for the previous three years is discussed.
Provisions within the Articles of Incorporation or pertinent indentures and various other agreements relating to the long-term debt and preferred stock of certain of Entergy Corporation's subsidiaries restrict the payment of cash dividends or other distributions on their common and preferred stock. As of December 31, 2005, Entergy Arkansas and Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of $396.4 million and $68.5 million, respectively. All debt and common and preferred stock issuances by the domestic utility companies and System Energy require prior regulatory approval and their preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and other agreements. The domestic utility companies and System Energy have sufficient capacity under these tests to meet foreseeable capital needs.
After the repeal of PUHCA 1935, effective February 8, 2006, the FERC, under the Federal Power Act, and not the SEC, has jurisdiction over authorizing securities issuances by the domestic utility companies and System Energy (except securities with maturities longer than one year issued by (a) Entergy Arkansas which are subject to the jurisdiction of the APSC and (b) Entergy New Orleans which are currently subject to the jurisdiction of the bankruptcy court). Under PUHCA 2005 and the Federal Power Act, no approvals are necessary for Entergy Corporation to issue securities. Under a savings provision in PUHCA 2005, each of the domestic utility companies and System Energy may rely on the financing authority in its existing PUHCA 1935 SEC order or orders through December 31, 2007 or until the SEC authority is superceded by FERC authorization. The FERC has issued an order ("FERC Short-Term Order") approving the short-term borrowing limits of the domestic utility companies (except Entergy New O rleans) and System Energy through March 31, 2008. Entergy New Orleans may rely on existing SEC PUHCA 1935 orders for its short-term financing authority, subject to bankruptcy court approval. In addition to borrowings from commercial banks, the FERC Short-Term Order authorized the domestic utility companies (except Entergy New Orleans which is authorized by an SEC PUHCA 1935 order) and System Energy to continue as participants in the Entergy System money pool through February 8, 2007. Entergy Gulf States and Entergy Louisiana, LLC have obtained long-term financing authorization from the FERC. The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external short-term borrowings combined may not exceed authorized limits. As of December 31, 2005, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, the aggregate outs tanding borrowing from the money pool was $379.7 million, and Entergy's subsidiaries' outstanding short-term borrowing from external sources was $40 million. To the extent that the domestic utility companies and System Energy wish to rely on SEC financing orders under PUHCA 1935 there are capitalization and investment grade ratings conditions that must be satisfied in connection with security issuances, other than money pool borrowings. See Note 4 to the consolidated financial statements for further discussion of Entergy's short-term borrowing limits.
Cash Flow Activity
As shown in Entergy's Statements of Cash Flows, cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Millions) |
|||||||
Cash and cash equivalents at beginning of period |
$620 |
$507 |
$1,335 |
||||
Effect of deconsolidating Entergy New Orleans in 2005 |
(8) |
- |
- |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
1,468 |
2,929 |
2,006 |
||||
Investing activities |
(1,992) |
(1,143) |
(1,968) |
||||
Financing activities |
496 |
(1,672) |
(869) |
||||
Effect of exchange rates on cash and cash equivalents |
(1) |
(1) |
3 |
||||
Net increase (decrease) in cash and cash equivalents |
(29) |
113 |
(828) |
||||
Cash and cash equivalents at end of period |
$583 |
$620 |
$507 |
Operating Cash Flow Activity
2005 Compared to 2004
Entergy's cash flow provided by operating activities decreased in 2005 primarily due to the following:
2004 Compared to 2003
Entergy's cash flow provided by operating activities increased in 2004 primarily due to the following:
In 2003, the domestic utility companies and System Energy filed, with the IRS, notification of a change in tax accounting method for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $2.8 billion deduction on Entergy's 2003 income tax return. There was no tax cash benefit from the method change in 2003. In addition, on a consolidated basis, no cash tax benefit was realized in 2004 or 2005. The Internal Revenue Service has issued new proposed regulations effective in 2005 that may preclude a significant portion of the benefit of this tax accounting method change. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calcu lations of cost of goods sold. This new method is also subject to IRS scrutiny.
In 2005, Non-Utility Nuclear changed its method of accounting for income tax purposes related to its wholesale electric power contracts. The adjustment placing these companies on the new mark-to-market methodology is expected to result in a $3.8 billion deduction on Entergy's 2005 income tax return. The election did not reduce book income tax expense. This deduction is expected to reverse over the next four years. The timing of the reversal of this deduction depends on several variables, including the price of power. On a consolidated basis, it is estimated that there was a $7 million cash tax benefit from the method change in 2005.
In August of 2005, the Energy Policy Act of 2005 was enacted. This Act contains provisions that enable the full accumulation of nuclear decommissioning funds on a tax deductible basis, shortens the depreciation recovery period for certain transmission capital expenditures, provides a production credit for electricity generated by new nuclear plants, and expands the net operating loss carry-back period to five years for 2003, 2004, and 2005 losses to the extent of 20% of transmission capital expenditures incurred in 2005, 2006, and 2007.
In December of 2005, the Gulf Opportunity Zone Act of 2005 was enacted. The Act contains provisions that allow a public utility incurring a net operating loss as a result of Hurricane Katrina to carry back the casualty loss portion of the net operating loss ten years to offset previously taxed income. The Act also allows a five-year carry back of the portion of the net operating loss attributable to Hurricane Katrina repairs expense and first year depreciation deductions, including 50% bonus depreciation, on Hurricane Katrina capital expenditures.
Entergy expects the above provisions to generate 2006 income tax refunds of approximately $300 million, including Entergy New Orleans.
Investing Activities
2005 Compared to 2004
Net cash used in investing activities increased in 2005 primarily due to the following activity:
Offsetting these factors was the following:
2004 Compared to 2003
Net cash used in investing activities decreased in 2004 primarily due to the following:
Financing Activities
2005 Compared to 2004
Financing activities provided $496 million of cash in 2005 compared to using $1,672 million of cash in 2004 primarily due to the following activity:
2004 Compared to 2003
Net cash used in financing activities increased in 2004 primarily due to the following:
Offsetting the factors that caused an increase in cash used in financing activities in 2004 were the following:
Significant Factors and Known Trends
Following are discussions of significant factors and known trends affecting Entergy's business, including rate regulation and fuel-cost recovery, federal regulation, market and credit risks, and nuclear matters.
State and Local Rate Regulation and Fuel-Cost Recovery
The rates that the domestic utility companies and System Energy charge for their services are an important item influencing Entergy's financial position, results of operations, and liquidity. These companies are closely regulated and the rates charged to their customers are determined in regulatory proceedings, except for a portion of Entergy Gulf States' operations. Governmental agencies, including the APSC, the City Council, the LPSC, the MPSC, the PUCT, and the FERC, are primarily responsible for approval of the rates charged to customers. The status of material retail rate proceedings is summarized below and described in more detail in Note 2 to the consolidated financial statements.
Company |
|
Authorized |
Pending Proceedings/Events |
|
|
|
|
|
|
Entergy Arkansas |
|
11.0% |
|
|
|
|
|
|
|
Entergy Gulf States-Texas |
|
10.95% |
|
|
|
|
|
|
|
Entergy Gulf States-Louisiana |
|
9.9%-11.4% |
|
|
|
|
|
|
|
Entergy Louisiana |
|
9.45%- |
|
|
|
|
|
|
|
Entergy Mississippi |
|
9.1%- |
|
|
|
|
|
|
|
Entergy New Orleans |
|
9.75%- |
|
|
|
|
|
|
|
System Energy |
|
10.94% |
|
|
In addition to the regulatory scrutiny connected with base rate proceedings, the domestic utility companies' fuel and purchased power costs recovered from customers are subject to regulatory scrutiny. The domestic utility companies' significant fuel and purchased power cost proceedings are described in Note 2 to the consolidated financial statements.
Federal Regulation
The FERC regulates wholesale rates (including Entergy intrasystem sales pursuant to the System Agreement) and interstate transmission of electricity, as well as rates for System Energy's sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement.
System Agreement Proceedings
The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which is a rate schedule that has been approved by the FERC. The LPSC pursued litigation involving the System Agreement at the FERC. The proceeding includes challenges to the allocation of costs as defined by the System Agreement and raises questions of imprudence by the domestic utility companies in their execution of the System Agreement.
In June 2005, the FERC issued a decision in the System Agreement litigation, and essentially affirmed its decision in a December 2005 order on rehearing. The FERC decision concluded, among other things, that:
The FERC's decision would reallocate total production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are more than 11% below Entergy System average production costs to domestic utility companies whose production costs are more than 11% above Entergy System average production costs.
An assessment of the potential effects of the FERC's decision requires assumptions regarding the future total production cost of each domestic utility company, which assumptions include the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana, Entergy Gulf States, and Entergy Mississippi are more dependent upon gas-fired generation sources than Entergy Arkansas or Entergy New Orleans. Of these, Entergy Arkansas is the least dependent upon gas-fired generation sources. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average total production costs of the domestic utility companies.
Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices (daily midpoint prices sourced from Platts Gas Daily) have varied significantly over recent years, ranging from $2.007/mmBtu to $8.529/mmBtu for the 1996-2005 period, and averaging $4.098/mmBtu during the ten-year period 1996-2005 and $5.434/mmBtu during the five-year period 2001-2005. Recent market conditions have resulted in gas prices that averaged $8.529/mmBtu for the twelve months ended December 2005. During the twelve-month period January 1, 2005 to December 31, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged $8.74/mmBtu (2006), $7.95/mmBtu (2007), $7.32/mmBtu (2008), and $6.83/mmBtu (2009). If, after pending appeals, the FERC's decision becomes final and if gas prices occur similar to the NYMEX average closing prices given, the following potential annual total production cost reallocations among the domestic utility companies could result:
|
Average Annual Payment or (Receipt) |
||
(In Millions) |
|||
Entergy Arkansas |
$293 to $385 |
$328 |
|
Entergy Gulf States |
($264) to ($196) |
($230) |
|
Entergy Louisiana |
($96) to ($51) |
($77) |
|
Entergy Mississippi |
($31) to ($3) |
($21) |
|
Entergy New Orleans |
$0 |
$0 |
If natural gas prices deviate by $1/mmBtu up or down from the NYMEX average closing prices given above, it is expected that Entergy Arkansas' annual payments will change in the same direction by approximately $70 to $80 million.
The LPSC, APSC, MPSC, and the AEEC have appealed the FERC decision to the Court of Appeals for the D.C. Circuit. Entergy has intervened in the LPSC appeal and intends to intervene in the other appeals. The City of New Orleans has also intervened in the LPSC appeal.
Entergy will be required to file with the FERC a compliance filing to implement the provisions of the FERC's decision. Management believes that any changes in the allocation of production costs resulting from the FERC's decision and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before Entergy's retail regulators. Although the outcome and timing of the FERC and other proceedings cannot be predicted at this time, Entergy does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.
Citing its concerns that the benefits of its continued participation in the current form of the System Agreement have been seriously eroded, in December 2005, Entergy Arkansas submitted its notice that it will terminate its participation in the current System Agreement effective 96 months from December 19, 2005 or such earlier date as authorized by the FERC. Entergy Arkansas indicated, however, that a properly structured replacement agreement could be a viable alternative. In response to an ALJ Initial Decision in the System Agreement proceeding in 2004, the APSC had previously commenced an investigation into whether Entergy Arkansas' continued participation in the System Agreement is in the best interest of its customers, and had also commenced investigations concerning Entergy Louisiana's Vidalia purchased power contract and Entergy Louisiana's then pending acquisition of the Perryville power plant.
Independent Coordinator of Transmission
In 2000, the FERC issued an order encouraging utilities to voluntarily place their transmission facilities under the control of independent RTOs (regional transmission organizations) by December 15, 2001. Delays in implementing the FERC order have occurred due to a variety of reasons, including the fact that utility companies, other stakeholders, and federal and state regulators continue to work to resolve various issues related to the establishment of such RTOs.
In April 2004, Entergy filed a proposal with the FERC to commit voluntarily to retain an independent entity (Independent Coordinator of Transmission or ICT) to oversee the granting of transmission or interconnection service on Entergy's transmission system, to implement a transmission pricing structure that ensures that Entergy's retail native load customers are required to pay for only those upgrades necessary to reliably serve their needs, and to have the ICT serve as the security coordinator for the Entergy region. The proposal was structured to not transfer control of Entergy's transmission system to the ICT, but rather to vest with the ICT broad oversight authority over transmission planning and operations.
After additional filings and subsequent declaratory orders issued by the FERC, on May 27, 2005, the domestic utility companies filed an enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in the FERC's declaratory orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether costs of transmission upgrades should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting o r causing an upgrade to be constructed; (4) serve as the reliability coordinator for the Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005, a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions, protests, and comments were filed by interested parties on August 5, 2005. Entergy filed a response to the various pleadings on August 22, 2005. Entergy anticipates receiving a FERC order on the May 27, 2005 filing during the second quarter 2006.
As discussed below in "Available Flowgate Capacity Proceedings," on October 31, 2005, the domestic utility companies notified parties to the ICT proceeding of the potential loss of historical data related to Entergy's calculation of available transfer capability for its transmission system.
In March 2004, the APSC initiated a proceeding to review Entergy's proposal and compare the benefits of such a proposal to the alternative of Entergy joining the Southwest Power Pool RTO. The APSC sought comments from all interested parties on this issue. Various parties, including the APSC General Staff, filed comments opposing the ICT proposal. A public hearing has not been scheduled by the APSC at this time, although Entergy Arkansas has responded to various APSC data requests. In May 2004, Entergy Mississippi filed a petition for review with the MPSC requesting MPSC support for the ICT proposal. A hearing in that proceeding was held in August 2004. Entergy New Orleans appeared before the Utility Committee of the City Council in June 2005 to provide information on the ICT proposal. Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. A hearing in the LP SC proceeding on the ICT proposal was held in October 2005, and Entergy Louisiana and Entergy Gulf States await the ALJ's initial decision.
Market-based Rate Authority
On May 5, 2005, the FERC instituted a proceeding under Section 206 of the FPA to investigate whether Entergy satisfies the FERC's transmission market power and affiliate abuse/reciprocal dealing standards for the granting of market-based rate authority, and established a refund effective date pursuant to the provisions of Section 206, for purposes of the additional issues set for hearing. However, the FERC decided to hold that investigation in abeyance pending the outcomes of the ICT proceeding and Entergy's affiliate purchased power agreements proceeding. On June 6, 2005, Entergy sought rehearing of the May 5 Order and that request for rehearing is pending.
On July 22, 2005, Entergy notified the FERC that it was withdrawing its request for market-based rate authority for sales within its control area. Instead, the domestic utility companies and their affiliates will transact at cost-based rates for wholesale sales within the Entergy control area. On November 1, 2005, Entergy submitted proposed cost-based rates for both the domestic utility companies and Entergy's non-regulated entities that sell at wholesale within the Entergy control area. Separately, the FERC accepted for filing Entergy Gulf States' proposed cost-based rates for wholesale sales to three separate municipalities. Additionally, Entergy reserves its right to request market-based rate authority for sales within its control area in the future. The relinquishment of market-based rates for sales within the Entergy control area is not expected to have a material effect on the financial results of Entergy.
Available Flowgate Capacity Proceeding
On December 17, 2004, the FERC issued an order initiating a hearing and investigation concerning the justness and reasonableness of the Available Flowgate Capacity (AFC) methodology, the methodology used to evaluate short-term transmission service requests under the domestic utility companies' open access transmission tariff, and establishing a refund effective date. In its order, the FERC indicated that although it "appreciates that Entergy is attempting to explore ways to improve transmission access on its system," it believed that an investigation was warranted to gather more evidence in light of the concerns raised by certain transmission customers and certain issues raised in a FERC audit report finding errors and problems with the predecessor methodology used by Entergy for evaluating short-term transmission requests, the Generator Operating Limits methodology. The FERC order indicates that the investigation will include an examination of (i) Entergy's implementation of the AFC pro gram, (ii) whether Entergy's implementation has complied with prior FERC orders and open access transmission tariff provisions addressing the AFC program, and (iii) whether Entergy's provision of access to short-term transmission on its transmission system was just, reasonable, and not unduly discriminatory.
On March 22, 2005, the FERC issued an order that holds the AFC hearing in abeyance pending action on Entergy's ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005, several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require the Southwest Power Pool (SPP) to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion ur ging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs. Entergy subsequently retained SPP to conduct an audit of the AFC processes and procedures. The SPP released its audit report on the AFC processes in which the SPP, among other things, identified an issue concerning limited instances in which transmission service was granted when there was insufficient AFC available. In light of this, the SPP has recommended that the AFC process be further automated to ensure the correct processing of every transmission service request. Entergy has advised the FERC Staff of this issue.
On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT.
On October 31, 2005, the domestic utility companies notified participants in the ICT proceeding that certain historic data related to the hourly AFC models may have been inadvertently lost due to errors in the implementation of a data archiving process. The data at issue is certain hourly AFC data for the nine-month period April 27, 2004 through January 31, 2005. Although Entergy is continuing to pursue all avenues for recovery and retrieval of the historic hourly data, it is difficult to predict whether and to what extent these efforts will ultimately be successful. Since discovering the potential loss of data, the domestic utility companies have taken steps to ensure that these errors cannot recur and to ensure that the current AFC hourly data, including the hourly data from February 1, 2005 forward, is adequately protected and retained. Entergy self-reported the event to the FERC's Office of Market Oversight and Investigations and is providing information to the investigation staff concerning this event. Additionally, Entergy will request that the ICT review the current process for retaining AFC-related data as part of its independent review discussed above.
Interconnection Orders
The domestic utility companies (except Entergy New Orleans) are currently defendants to several complaints and rehearing requests before the FERC in which independent generation entities (GenCos) are seeking a refund of monies that the GenCos had previously paid to the Entergy companies for facilities necessary to connect their generation facilities to Entergy's transmission system. The FERC has issued orders in response to three complaints and in certain other dockets ordering Entergy to refund approximately $123 million in expenses and tax obligations previously paid by the GenCos, including $42 million for Entergy Arkansas, $28 million for Entergy Gulf States, $24 million for Entergy Louisiana, and $29 million for Entergy Mississippi. The refunds will be in the form of transmission credits that will be utilized over time as the GenCos take transmission service from Entergy. There are other complaints that have been filed with FERC in an approximate amount of $43 million , including $27 million for Entergy Arkansas, $8 million for Entergy Gulf States, and $8 million for Entergy Louisiana, in which the FERC has not taken action.
To the extent the Entergy companies are ordered to provide such refunds, these costs will qualify for inclusion in the Entergy companies' rates. The recovery of these costs is not automatic, however, especially at the retail level, where the majority of the cost recovery would occur. Entergy intends to pursue all regulatory and legal avenues available to it in order to have these orders reversed and have the affected interconnection agreements reinstated as agreed to originally by the generators.
Energy Policy Act of 2005
The Energy Policy Act of 2005 became law in August 2005. The legislation contains electricity provisions that, among other things:
The Energy Policy Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions and the FERC in its rule-makings has indicated it plans, by February 8, 2007, for further review of, and possible changes to, its implementation of PUHCA 2005 and the repeal of PUHCA 1935. Therefore, it will be a period of time before a full assessment of its effects on Entergy and the energy industry can be completed.
Market and Credit Risks
Market risk is the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions. Entergy is exposed to the following significant market risks:
Entergy is also exposed to credit risk. Credit risk is the risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement. Credit risk also includes potential demand on liquidity due to collateral requirements within supply or sales agreements. Where it is a significant consideration, counterparty credit risk is addressed in the discussions that follow.
Commodity Price Risk
Power Generation
The sale of electricity from the power generation plants owned by Entergy's Non-Utility Nuclear business and Energy Commodity Services, unless otherwise contracted, is subject to the fluctuation of market power prices. Entergy's Non-Utility Nuclear business has entered into PPAs and other contracts to sell the power produced by its power plants at prices established in the PPAs. Entergy continues to pursue opportunities to extend the existing PPAs and to enter into new PPAs with other parties. Following is a summary of the amount of the Non-Utility Nuclear business' output that is currently sold forward under physical or financial contracts:
2006 |
2007 |
2008 |
2009 |
2010 |
|||||||
Non-Utility Nuclear: |
|||||||||||
Percent of planned generation sold forward: |
|||||||||||
Unit-contingent |
34% |
32% |
25% |
19% |
12% |
||||||
Unit-contingent with availability guarantees |
53% |
47% |
32% |
13% |
5% |
||||||
Firm liquidated damages |
4% |
2% |
0% |
0% |
0% |
||||||
Total |
91% |
81% |
57% |
32% |
17% |
||||||
Planned generation (TWh) |
35 |
34 |
34 |
35 |
34 |
||||||
Average contracted price per MWh |
$41 |
$45 |
$49 |
$54 |
$45 |
The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant, which is through the expiration in 2012 of the current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly, beginning in November 2005, if power market prices drop below PPA prices.
A sale of power on a unit contingent basis coupled with an availability guarantee provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy's outstanding availability guarantees provide for dollar limits on Entergy's maximum liability under such guarantees.
Non-Utility Nuclear's purchase of the Fitzpatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. Under the value sharing agreements, to the extent that the average annual price of the energy sales from each of the two plants exceeds specified strike prices, the Non-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to NYPA. These payments, if required, will be recorded as adjustments to the purchase price of the plants. The annual energy sales subject to the value sharing agreements are limited to the lesser of actual generation or generation assuming an 85% capacity factor based on the plants' capacities at the time of the purchase. The value sharing agreements are effective through 2014. The strike prices for Fitzpatrick range from $37.51/MWh in 2005 increasing by approximately 3.5% each year to $51.30/MWh in 2014, and the strike prices for Indian Point 3 range from $42.26/MWh in 2005 increasing by approximately 3.5% eac h year to $57.77/MWh in 2014.
Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants and the wholesale supply agreements entered into by Entergy's Competitive Retail business contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear and Competitive Retail businesses sell power. The primary form of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. At December 31, 2005, based on power prices at that time, Entergy had in place as collateral $1,630 million of Entergy Corporation guarantees for wholesale transactions, $237 million of which support letters of credit. The assurance requirement associated with No n-Utility Nuclear is estimated to increase by an amount up to $400 million if gas prices increase $1 per MMBtu in both the short- and long-term markets. In the event of a decrease in Entergy Corporation's credit rating to below investment grade, Entergy may be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements.
In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the ISO in their area. Following is a summary of the amount of the Non-Utility Nuclear business' installed capacity that is currently sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward:
2006 |
2007 |
2008 |
2009 |
2010 |
|||||||
Non-Utility Nuclear: |
|||||||||||
Percent of capacity sold forward: |
|||||||||||
Bundled capacity and energy contracts |
12% |
12% |
12% |
12% |
12% |
||||||
Capacity contracts |
77% |
46% |
36% |
24% |
3% |
||||||
Total |
89% |
58% |
48% |
36% |
15% |
||||||
Planned net MW in operation |
4,184 |
4,200 |
4,200 |
4,200 |
4,200 |
||||||
Average capacity contract price per kW per month |
$1.0 |
$1.1 |
$1.1 |
$1.0 |
$0.9 |
||||||
Blended Capacity and Energy (based on revenues) |
|||||||||||
% of planned generation and capacity sold forward |
82% |
71% |
47% |
27% |
12% |
||||||
Average contract revenue per MWh |
$42 |
$46 |
$50 |
$55 |
$46 |
As of December 31, 2005, approximately 96% of Non-Utility Nuclear's counterparty exposure from energy and capacity contracts is with counterparties with investment grade credit ratings.
Following is a summary of the amount of Energy Commodity Services' output and installed capacity that is currently sold forward under physical or financial contracts at fixed prices:
2006 |
2007 |
2008 |
2009 |
2010 |
||||||
Energy Commodity Services: |
||||||||||
Capacity |
||||||||||
Planned MW in operation |
1,578 |
1,578 |
1,578 |
1,578 |
1,578 |
|||||
% of capacity sold forward |
33% |
29% |
29% |
19% |
17% |
|||||
Energy |
||||||||||
Planned generation (TWh) |
4 |
4 |
4 |
4 |
4 |
|||||
% of planned generation sold forward |
47% |
41% |
43% |
36% |
36% |
|||||
Blended Capacity and Energy (based on revenues) |
||||||||||
% of planned energy and capacity sold forward |
25% |
23% |
26% |
17% |
17% |
|||||
Average contract revenue per MWh |
$26 |
$28 |
$28 |
$21 |
$20 |
Entergy continually monitors industry trends in order to determine whether asset impairments or other losses could result from a decline in value, or cancellation, of merchant power projects, and records provisions for impairments and losses accordingly. As discussed in "Results of Operations" above, in 2004 Entergy determined that the value of the Warren Power plant owned by the non-nuclear wholesale assets business was impaired, and recorded the appropriate provision for the loss.
Foreign Currency Exchange Rate Risk
Entergy Gulf States, System Fuels, and Entergy's Non-Utility Nuclear business enter into foreign currency forward contracts to hedge the Euro-denominated payments due under certain purchase contracts. The notional amounts of the foreign currency forward contracts are 16.7 million Euro and the forward currency rates range from .96370 to 1.32540. The maturities of these forward contracts depend on the purchase contract payment dates and range in time from January 2006 to January 2007. The mark-to-market valuation of the forward contracts at December 31, 2005 was a net asset of $3.5 million. The counterparty banks obligated on these agreements are rated by Standard & Poor's Rating Services at AA on their senior debt obligations as of December 31, 2005.
Interest Rate and Equity Price Risk - Decommissioning Trust Funds
Entergy's nuclear decommissioning trust funds are exposed to fluctuations in equity prices and interest rates. The NRC requires Entergy to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1 and 2, and Vermont Yankee (NYPA currently retains the decommissioning trusts and liabilities for Indian Point 3 and FitzPatrick). The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents. Management believes that exposure of the various funds to market fluctuations will not affect Entergy's financial results of operations as it relates to the ANO 1 and 2, River Bend, Grand Gulf, and Waterford 3 trust funds because of the application of regulatory accounting principles. The Pilgrim, Indian Point 1 and 2, and Vermont Yankee trust funds collectively hold approximately $952 million of fixed-rate, fixed-income securities as of December 31, 2005. These s ecurities have an average coupon rate of approximately 5.2%, an average duration of approximately 5.6 years, and an average maturity of approximately 9.2 years. The Pilgrim, Indian Point 1 and 2, and Vermont Yankee trust funds also collectively hold equity securities worth approximately $519 million as of December 31, 2005. These securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor's 500 Index, and a relatively small percentage of the securities are held in a fund intended to replicate the return of the Wilshire 4500 Index. The decommissioning trust funds are discussed more thoroughly in Notes 1, 8, and 15 to the consolidated financial statements.
Central States Compact Claim
The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska s eeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid $145 million, including interest, to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $19.4 million to Entergy Louisiana. The proceeds caused an increase in pre-tax earnings of $ 28.7 million.
Critical Accounting Estimates
The preparation of Entergy's financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy's financial position or results of operations.
Nuclear Decommissioning Costs
Entergy owns a significant number of nuclear generation facilities in both its U.S. Utility and Non-Utility Nuclear business units. Regulations require Entergy to decommission its nuclear power plants after each facility is taken out of service, and money is collected and deposited in trust funds during the facilities' operating lives in order to provide for this obligation. Entergy conducts periodic decommissioning cost studies (typically updated every three to five years) to estimate the costs that will be incurred to decommission the facilities. The following key assumptions have a significant effect on these estimates:
SFAS 143
Entergy implemented SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. Nuclear decommissioning costs comprise substantially all of Entergy's asset retirement obligations. The following revisions were made to Entergy's estimated decommissioning cost liabilities in 2004 and 2005.
In the first quarter of 2004, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for ANO 1 and 2 as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of the plants will begin. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.
In the third quarter of 2004, Entergy Gulf States recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for River Bend that reflected an expected life extension for the plant. The revised estimate resulted in a $116.8 million reduction in decommissioning liability, along with a $31.3 million reduction in utility plant, a $40.1 million reduction in the related regulatory asset, and a regulatory liability of $17.7 million. For the portion of River Bend not subject to cost-based ratemaking, the revised estimate resulted in the elimination of the asset retirement cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 million ($17 million net-of-tax).
In the third quarter of 2004, Entergy's Non-Utility Nuclear business recorded a reduction of $20.3 million in its decommissioning cost liability to reflect changes in assumptions regarding the timing of when the decommissioning of a plant will begin. Entergy considered the assumptions as part of recent studies evaluating the economic effect of the plant in its region. The revised estimate resulted in miscellaneous income of $20.3 million ($11.9 million net-of-tax).
In the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded a reduction of $26.0 million in its decommissioning cost liability in conjunction with a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptions regarding the timing of the decommissioning of a plant. The revised estimate resulted in miscellaneous income of $26.0 million ($15.8 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated assets.
In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.
In the third quarter of 2005, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability for ANO 2 in accordance with the receipt of approval by the NRC of Entergy Arkansas' application for a life extension for the unit. The revised estimate resulted in an $87.2 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.
In the third quarter of 2005, System Energy recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Grand Gulf. The revised estimate resulted in a $41.4 million reduction in the decommissioning cost liability for Grand Gulf, along with a $39.7 million reduction in utility plant and a $1.7 million reduction in the related regulatory asset.
Unbilled Revenue
As discussed in Note 1 to the consolidated financial statements, Entergy records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month, including fuel price. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period and fuel price fluctuations, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estimate of unbilled customer usage, and assumptions r egarding price such as the fuel cost recovery mechanism.
Impairment of Long-lived Assets
Entergy has significant investments in long-lived assets in all of its segments, and Entergy evaluates these assets against the market economics and under the accounting rules for impairment whenever there are indications that impairments may exist. This evaluation involves a significant degree of estimation and uncertainty, and these estimates are particularly important in Entergy's U.S. Utility and Energy Commodity Services segments. In the U.S. Utility segment, portions of River Bend and Grand Gulf are not included in rate base, which could reduce the revenue that would otherwise be recovered for the applicable portions of those units' generation. In the Energy Commodity Services segment, Entergy's investments in merchant generation assets are subject to impairment if adverse market conditions arise.
In order to determine if Entergy should recognize an impairment of a long-lived asset that is to be held and used, accounting standards require that the sum of the expected undiscounted future cash flows from the asset be compared to the asset's carrying value. If the expected undiscounted future cash flows exceed the carrying value, no impairment is recorded; if such cash flows are less than the carrying value, Entergy is required to record an impairment charge to write the asset down to its fair value. If an asset is held for sale, an impairment is required to be recognized if the fair value (less costs to sell) of the asset is less than its carrying value.
These estimates are based on a number of key assumptions, including:
In the fourth quarter of 2005, Entergy recorded a charge of $39.8 million ($25.8 million net-of-tax) as a result of the impairment of the Competitive Retail Services business' information technology systems. Entergy has decided to divest the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas and, in connection with that decision, management evaluated the carrying amount of the Competitive Retail Services business' information technology systems and determined that an impairment provision should be recorded.
In the fourth quarter of 2004, Entergy recorded a charge of approximately $55 million ($36 million net-of-tax) as a result of an impairment of the value of the Warren Power plant. Entergy concluded that the value of the plant, which is owned in the non-nuclear wholesale assets business, was impaired. Entergy reached this conclusion based on valuation studies prepared in connection with the Entergy Asset Management stock sale discussed above in "Results of Operations."
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified, defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the consolidated financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate for the U.S. Utility and Non-Utility Nuclear segments.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed-income securities and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed-income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
Change in |
|
Impact on 2005 |
|
Impact on Qualified Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$10,564 |
|
$105,990 |
Rate of return on plan assets |
|
(0.25%) |
|
$4,705 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$5,510 |
|
$33,091 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
|
0.25% |
|
$4,511 |
|
$24,536 |
Discount rate |
|
(0.25%) |
|
$3,082 |
|
$29,341 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the effect of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 may have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
In 2005, Entergy's total qualified pension cost was $118.3 million. Entergy anticipates 2006 qualified pension cost to increase to $131.6 million due to a decrease in the discount rate (from 6.00% to 5.90%), actual return on plan assets less than 8.5%, and a plan amendment at Non-Utility Nuclear. Pension funding was $131.8 million for 2005, and under current law, is projected to be $349 million in 2006. This projection may change pending passage of pension reform legislation. In January 2006, $109 million was funded. $107 million of this contribution was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act. The rise in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, offset by the Pension Funding Equity Act relief passed in April 2004.
Entergy's qualified pension accumulated benefit obligation at December 31, 2005, 2004, and 2003 exceeded plan assets. As a result, Entergy was required to recognize an additional minimum pension liability as prescribed by SFAS 87. At December 31, 2005, Entergy increased its qualified pension plans' additional minimum pension liability to $406 million ($382 million net of related pension assets) from $244 million ($218 million net of related pension assets) at December 31, 2004. Other comprehensive income increased to $15 million at December 31, 2005 from $6.6 million at December 31, 2004, after reductions for the unrecognized prior service cost, amounts recoverable in rates, and taxes. Net income for 2005, 2004, and 2003 was not affected.
Total postretirement health care and life insurance benefit costs for Entergy in 2005 were $83.7 million, including $24.3 million in savings due to the estimated effect of future Medicare Part D subsidies. Entergy expects 2006 postretirement health care and life insurance benefit costs to approximate $94.1 million, including a projected $27.8 million in savings due to the estimated effect of future Medicare Part D subsidies. The increase in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.90%) and an increase in the health care cost trend rate used to calculate benefit obligations.
Other Contingencies
As a company with multi-state domestic utility operations and a history of international investments, Entergy is subject to a number of federal, state, and international laws and regulations and other factors and conditions in the areas in which it operates, which potentially subject it to environmental, litigation, and other risks. Entergy periodically evaluates its exposure for such risks and records a reserve for those matters which are considered probable and estimable in accordance with generally accepted accounting principles.
Environmental
Entergy must comply with environmental laws and regulations applicable to the handling and disposal of hazardous waste. Under these various laws and regulations, Entergy could incur substantial costs to restore properties consistent with the various standards. Entergy conducts studies to determine the extent of any required remediation and has recorded reserves based upon its evaluation of the likelihood of loss and expected dollar amount for each issue. Additional sites could be identified which require environmental remediation for which Entergy could be liable. The amounts of environmental reserves recorded can be significantly affected by the following external events or conditions:
Litigation
Entergy has been named as defendant in a number of lawsuits involving employment, ratepayer, and injuries and damages issues, among other matters. Entergy periodically reviews the cases in which it has been named as defendant and assesses the likelihood of loss in each case as probable, reasonably estimable, or remote and records reserves for cases which have a probable likelihood of loss and can be estimated. Notes 2 and 8 to the consolidated financial statements include more detail on ratepayer and other lawsuits and management's assessment of the adequacy of reserves recorded for these matters. Given the environment in which Entergy operates, and the unpredictable nature of many of the cases in which Entergy is named as a defendant, however, the ultimate outcome of the litigation Entergy is exposed to has the potential to materially affect the results of operations of Entergy, or its operating company subsidiaries.
Sales Warranty and Tax Reserves
Entergy's operations, including acquisitions and divestitures, require Entergy to evaluate risks such as the potential tax effects of a transaction, or warranties made in connection with such a transaction. Entergy believes that it has adequately assessed and provided for these types of risks, where applicable. Any reserves recorded for these types of issues, however, could be significantly affected by events such as claims made by third parties under warranties, additional transactions contemplated by Entergy, or completion of reviews of the tax treatment of certain transactions or issues by taxing authorities. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued in the financial statements. Entergy does not expect a material adverse effect on earnings from these matters.
New Accounting Pronouncements
In December 2005, Entergy implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy's obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. For the U.S. Utility business, the implementation of FIN 47 for the rate-regulated business of the domestic utility companies was recorded as regulatory assets, with no resulting effect on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction allow for the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future customers. As a result of this treatment, FIN 47 is expected to be earnings neutral to the rate-regulated business of the domestic utility companies. Upon implementation of FIN 47 in December 2005, assets increased by $28.8 million and liabilities increased by $30.3 million for the U.S. Utility segment as a result of recording the asset retirement obligations at their fair values of $30.3 million as determined under FIN 47, increasing utility plant by $2.7 million, increasing accumulated depreciation by $1.8 million, and recording the related regulatory assets of $27.9 million. The implementation of FIN 47 for the portion of Entergy Gulf States not subject to cost-based ratemaking decreased earnings by $0.9 million net-of-tax.
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(In Thousands, Except Percentages and Per Share Amounts) | ||||||||||
Operating revenues | $10,106,247 | $9,685,521 | $9,032,714 | $8,299,052 | $9,620,561 | |||||
Income from continuing operations before cumulative effect of accounting changes |
$968,552 | $933,090 | $827,797 | $633,627 | $739,062 | |||||
Earnings per share from continuing operations before cumulative effect of accounting changes |
||||||||||
Basic | $4.49 | $4.01 | $3.55 | $2.73 | $3.24 | |||||
Diluted | $4.40 | $3.93 | $3.48 | $2.68 | $3.18 | |||||
Dividends declared per share | $2.16 | $1.89 | $1.60 | $1.34 | $1.28 | |||||
Return on common equity | 11.20% | 10.70% | 11.21% | 7.85% | 10.04% | |||||
Book value per share, year-end | $37.31 | $38.25 | $38.02 | $35.24 | $33.78 | |||||
Total assets | $30,851,269 | $28,310,777 | $28,527,388 | $27,504,366 | $25,910,311 | |||||
Long-term obligations (1) | $9,013,448 | $7,180,291 | $7,497,690 | $7,488,919 | $7,743,298 | |||||
(1) Includes long-term debt (excluding currently maturing debt), preferred stock with sinking fund, and noncurrent capital lease obligations. | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Millions) | ||||||||||
U.S. Utility Electric Operating Revenues: | ||||||||||
Residential | $2,912 | $2,842 | $2,683 | $2,440 | $2,613 | |||||
Commercial | 2,041 | 2,045 | 1,882 | 1,673 | 1,860 | |||||
Industrial | 2,419 | 2,311 | 2,082 | 1,850 | 2,299 | |||||
Governmental | 141 | 200 | 195 | 179 | 205 | |||||
Total retail | 7,513 | 7,398 | 6,842 | 6,142 | 6,977 | |||||
Sales for resale (1) | 656 | 390 | 371 | 330 | 395 | |||||
Other (2) | 278 | 145 | 184 | 174 | (127) | |||||
Total | $8,447 | $7,933 | $7,397 | $6,646 | $7,245 | |||||
U.S. Utility Billed Electric Energy Sales (GWh): | ||||||||||
Residential | 31,569 | 32,897 | 32,817 | 32,581 | 31,080 | |||||
Commercial | 24,401 | 26,468 | 25,863 | 25,354 | 24,706 | |||||
Industrial | 37,615 | 40,293 | 38,637 | 41,018 | 41,577 | |||||
Governmental | 1,568 | 2,568 | 2,651 | 2,678 | 2,593 | |||||
Total retail | 95,153 | 102,226 | 99,968 | 101,631 | 99,956 | |||||
Sales for resale (1) | 5,730 | 8,623 | 9,248 | 9,828 | 8,896 | |||||
Total | 100,883 | 110,849 | 109,216 | 111,459 | 108,852 | |||||
(1) Includes sales to Entergy New Orleans, which was deconsolidated in 2005. See Note 16 to the consolidated financial statements. | ||||||||||
(2) 2001 includes the effect of a reserve for rate refund at System Energy. | ||||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Entergy Corporation and Subsidiaries (the "Corporation") as of December 31, 2005 and 2004, and the related consolidated statements of income; of retained earnings, comprehensive income, and paid-in capital; and of cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Entergy-Koch, LP, the Corporation's investment in which is accounted for by the use of the equity method. The Corporation's equity in earnings of unconsolidated equity affiliates for the year ended December 31, 2003 includes $180,110,000 for Entergy Koch, LP, which earnings were audited by other auditors whose report (which as to 2003 included an explanatory paragraph concerning a change in accounting for inventory held for trading purposes and energy trading contracts not qualifying as derivatives) has been furnished to us, and our opinion for the year ended December 31, 2003, insofar as it relates to the amount audited by other auditors included for such company, is based solely on the report of such other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Entergy Corporation and Subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 8 to the consolidated financial statements, in 2003 Entergy Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Corporation's internal control over financial reporting and an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands, Except Share Data) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $8,446,830 | $7,932,577 | $7,397,175 | |||
Natural gas | 77,660 | 208,499 | 186,176 | |||
Competitive businesses | 1,581,757 | 1,544,445 | 1,449,363 | |||
TOTAL | 10,106,247 | 9,685,521 | 9,032,714 | |||
OPERATING EXPENSES | ||||||
Operating and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 2,176,015 | 2,488,208 | 1,987,217 | |||
Purchased power | 2,521,247 | 1,701,610 | 1,579,057 | |||
Nuclear refueling outage expenses | 162,653 | 166,072 | 159,995 | |||
Provisions for asset impairments and restructuring charges | - - | 55,000 | (7,743) | |||
Other operation and maintenance | 2,122,206 | 2,268,332 | 2,423,951 | |||
Decommissioning | 143,121 | 149,529 | 146,100 | |||
Taxes other than income taxes | 382,521 | 403,635 | 402,571 | |||
Depreciation and amortization | 856,377 | 893,574 | 849,771 | |||
Other regulatory credits - net | (49,882) | (90,611) | (13,761) | |||
TOTAL | 8,314,258 | 8,035,349 | 7,527,158 | |||
OPERATING INCOME | 1,791,989 | 1,650,172 | 1,505,556 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 45,736 | 39,582 | 42,710 | |||
Interest and dividend income | 150,479 | 109,635 | 87,334 | |||
Equity in earnings (loss) of unconsolidated equity affiliates | 985 | (78,727) | 271,647 | |||
Miscellaneous - net | 14,251 | 55,509 | (76,376) | |||
TOTAL | 211,451 | 125,999 | 325,315 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 440,334 | 463,384 | 485,964 | |||
Other interest - net | 64,646 | 40,133 | 52,868 | |||
Allowance for borrowed funds used during construction | (29,376) | (25,741) | (33,191) | |||
TOTAL | 475,604 | 477,776 | 505,641 | |||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ||||||
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES | 1,527,836 | 1,298,395 | 1,325,230 | |||
Income taxes | 559,284 | 365,305 | 497,433 | |||
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE | ||||||
EFFECT OF ACCOUNTING CHANGES | 968,552 | 933,090 | 827,797 | |||
LOSS FROM DISCONTINUED OPERATIONS (net of income tax expense | ||||||
(benefit) of ($24,051) , $603 , and ($7,359) , respectively) | (44,794) | (41) | (14,404) | |||
CUMULATIVE EFFECT OF ACCOUNTING | ||||||
CHANGES (net of income tax expense of $89,925) | - - | - - | 137,074 | |||
CONSOLIDATED NET INCOME | 923,758 | 933,049 | 950,467 | |||
Preferred dividend requirements and other | 25,427 | 23,525 | 23,524 | |||
EARNINGS APPLICABLE TO | ||||||
COMMON STOCK | $898,331 | $909,524 | $926,943 | |||
Basic earnings (loss) per average common share: | ||||||
Continuing operations | $4.49 | $4.01 | $3.55 | |||
Discontinued operations | ($0.21) | - - | ($0.06) | |||
Cumulative effect of accounting changes | - - | - - | $0.60 | |||
Basic earnings per average common share | $4.27 | $4.01 | $4.09 | |||
Diluted earnings (loss) per average common share: | ||||||
Continuing operations | $4.40 | $3.93 | $3.48 | |||
Discontinued operations | ($0.21) | - - | ($0.06) | |||
Cumulative effect of accounting changes | - - | - - | $0.59 | |||
Diluted earnings per average common share | $4.19 | $3.93 | $4.01 | |||
Dividends declared per common share | $2.16 | $1.89 | $1.60 | |||
Basic average number of common shares outstanding | 210,141,887 | 226,863,758 | 226,804,370 | |||
Diluted average number of common shares outstanding | 214,441,362 | 231,193,686 | 231,146,040 | |||
See Notes to Consolidated Financial Statements. |
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Consolidated net income | $923,758 | $933,049 | $950,467 | |||
Adjustments to reconcile consolidated net income to net cash flow | ||||||
provided by operating activities: | ||||||
Reserve for regulatory adjustments | (82,033) | 33,533 | 13,090 | |||
Other regulatory credits - net | (49,882) | (90,611) | (13,761) | |||
Depreciation, amortization, and decommissioning | 1,001,852 | 1,045,122 | 996,603 | |||
Deferred income taxes and investment tax credits | 626,813 | 275,458 | 1,189,531 | |||
Cumulative effect of accounting changes | - | - | (137,074) | |||
Equity in earnings (loss) of unconsolidated equity affiliates - net of dividends | 4,315 | 608,141 | (176,036) | |||
Provisions for asset impairments and restructuring charges | 39,767 | 55,000 | (7,743) | |||
Changes in working capital: | ||||||
Receivables | (367,351) | (210,419) | (140,612) | |||
Fuel inventory | (83,125) | (16,769) | (14,015) | |||
Accounts payable | 303,194 | 95,306 | (60,164) | |||
Taxes accrued | (172,315) | 75,055 | (882,446) | |||
Interest accrued | 15,133 | 5,269 | (35,837) | |||
Deferred fuel | (236,801) | 213,627 | (33,874) | |||
Other working capital accounts | (45,653) | 41,008 | 16,809 | |||
Provision for estimated losses and reserves | (3,704) | (18,041) | 196,619 | |||
Changes in other regulatory assets | (311,934) | 48,626 | 22,671 | |||
Other | (94,226) | (164,035) | 121,592 | |||
Net cash flow provided by operating activities | 1,467,808 | 2,929,319 | 2,005,820 | |||
INVESTING ACTIVITIES | ||||||
Construction/capital expenditures | (1,458,086) | (1,410,610) | (1,568,943) | |||
Allowance for equity funds used during construction | 45,736 | 39,582 | 42,710 | |||
Nuclear fuel purchases | (314,414) | (238,170) | (224,308) | |||
Proceeds from sale/leaseback of nuclear fuel | 184,403 | 109,988 | 150,135 | |||
Proceeds from sale of assets and businesses | - | 75,430 | 25,987 | |||
Payment for purchase of plant | (162,075) | - | - | |||
Investment in nonutility properties | - | (6,420) | (71,438) | |||
Decrease in other investments | 9,905 | 383,498 | 172,187 | |||
Purchases of other temporary investments | (1,591,025) | (1,629,500) | (613,464) | |||
Liquidation of other temporary investments | 1,778,975 | 1,676,350 | 378,664 | |||
Proceeds from nuclear decommissioning trust fund sales | 944,253 | 679,466 | 729,440 | |||
Investment in nuclear decommissioning trust funds | (1,039,824) | (769,273) | (820,958) | |||
Other regulatory investments | (390,456) | (53,566) | (156,446) | |||
Other | - | - | (11,496) | |||
Net cash flow used in investing activities | (1,992,608) | (1,143,225) | (1,967,930) | |||
See Notes to Consolidated Financial Statements. | ||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
FINANCING ACTIVITIES | ||||||
Proceeds from the issuance of: | ||||||
Long-term debt | 4,302,570 | 3,653,478 | 4,596,189 | |||
Preferred stock | 127,995 | - | - | |||
Common stock and treasury stock | 106,068 | 170,237 | 217,521 | |||
Retirement of long-term debt | (2,689,206) | (4,022,548) | (5,284,917) | |||
Repurchase of common stock | (878,188) | (1,017,996) | (8,135) | |||
Redemption of preferred stock | (33,719) | (3,450) | (3,450) | |||
Changes in credit line borrowings - net | 39,850 | (154) | - | |||
Dividends paid: | ||||||
Common stock | (453,508) | (427,901) | (362,814) | |||
Preferred stock | (25,472) | (23,525) | (23,524) | |||
Net cash flow provided by (used in) financing activities | 496,390 | (1,671,859) | (869,130) | |||
Effect of exchange rates on cash and cash equivalents | (602) | (1,882) | 3,345 | |||
Net increase (decrease) in cash and cash equivalents | (29,012) | 112,353 | (827,895) | |||
Cash and cash equivalents at beginning of period | 619,786 | 507,433 | 1,335,328 | |||
Effect of the deconsolidation of Entergy New Orleans on cash and cash equivalents | (7,954) | - | - | |||
Cash and cash equivalents at end of period | $582,820 | $619,786 | $507,433 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid during the period for: | ||||||
Interest - net of amount capitalized | $461,345 | $477,768 | $552,017 | |||
Income taxes | $116,072 | $28,241 | $188,709 | |||
See Notes to Consolidated Financial Statements. | ||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $221,773 | $79,136 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 361,047 | 540,650 | ||
Total cash and cash equivalents | 582,820 | 619,786 | ||
Other temporary investments | - | 187,950 | ||
Note receivable - Entergy New Orleans DIP loan | 90,000 | - | ||
Notes receivable | 3,227 | 3,092 | ||
Accounts receivable: | ||||
Customer | 732,455 | 435,191 | ||
Allowance for doubtful accounts | (30,805) | (23,758) | ||
Other | 356,414 | 342,289 | ||
Accrued unbilled revenues | 477,570 | 460,039 | ||
Total receivables | 1,535,634 | 1,213,761 | ||
Deferred fuel costs | 543,927 | 55,069 | ||
Accumulated deferred income taxes | - | 76,899 | ||
Fuel inventory - at average cost | 206,195 | 127,251 | ||
Materials and supplies - at average cost | 610,932 | 569,407 | ||
Deferred nuclear refueling outage costs | 157,764 | 107,782 | ||
Prepayments and other | 325,795 | 116,279 | ||
TOTAL | 4,056,294 | 3,077,276 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 296,784 | 231,779 | ||
Decommissioning trust funds | 2,606,765 | 2,453,406 | ||
Non-utility property - at cost (less accumulated depreciation) | 228,833 | 219,717 | ||
Other | 81,535 | 90,992 | ||
TOTAL | 3,213,917 | 2,995,894 | ||
PROPERTY, PLANT AND EQUIPMENT | ||||
Electric | 29,161,027 | 29,053,340 | ||
Property under capital lease | 727,565 | 738,554 | ||
Natural gas | 86,794 | 262,787 | ||
Construction work in progress | 1,524,085 | 1,197,551 | ||
Nuclear fuel under capital lease | 271,615 | 262,469 | ||
Nuclear fuel | 436,646 | 320,813 | ||
TOTAL PROPERTY, PLANT AND EQUIPMENT | 32,207,732 | 31,835,514 | ||
Less - accumulated depreciation and amortization | 13,010,687 | 13,139,883 | ||
PROPERTY, PLANT AND EQUIPMENT - NET | 19,197,045 | 18,695,631 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 735,221 | 746,413 | ||
Other regulatory assets | 2,133,724 | 1,429,261 | ||
Deferred fuel costs | 120,489 | 30,842 | ||
Long-term receivables | 25,572 | 39,417 | ||
Goodwill | 377,172 | 377,172 | ||
Other | 991,835 | 918,871 | ||
TOTAL | 4,384,013 | 3,541,976 | ||
TOTAL ASSETS | $30,851,269 | $28,310,777 | ||
See Notes to Consolidated Financial Statements. | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $103,517 | $492,564 | ||
Notes payable | 40,041 | 193 | ||
Accounts payable | 1,655,787 | 896,528 | ||
Customer deposits | 222,206 | 222,320 | ||
Taxes accrued | 188,159 | 224,011 | ||
Accumulated deferred income taxes | 143,409 | - | ||
Nuclear refueling outage costs | 15,548 | - | ||
Interest accrued | 154,855 | 144,478 | ||
Obligations under capital leases | 130,882 | 133,847 | ||
Other | 473,510 | 218,442 | ||
TOTAL | 3,127,914 | 2,332,383 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 5,279,228 | 5,067,381 | ||
Accumulated deferred investment tax credits | 376,550 | 399,228 | ||
Obligations under capital leases | 175,005 | 146,060 | ||
Other regulatory liabilities | 408,667 | 329,767 | ||
Decommissioning and retirement cost liabilities | 1,923,971 | 2,066,277 | ||
Transition to competition | 79,101 | 79,101 | ||
Regulatory reserves | 18,624 | 103,061 | ||
Accumulated provisions | 556,028 | 549,914 | ||
Long-term debt | 8,824,493 | 7,016,831 | ||
Preferred stock with sinking fund | 13,950 | 17,400 | ||
Other | 1,879,017 | 1,541,331 | ||
TOTAL | 19,534,634 | 17,316,351 | ||
Commitments and Contingencies | ||||
Preferred stock without sinking fund | 445,974 | 365,356 | ||
SHAREHOLDERS' EQUITY | ||||
Common stock, $.01 par value, authorized 500,000,000 | ||||
shares; issued 248,174,087 shares in 2005 and in 2004 | 2,482 | 2,482 | ||
Paid-in capital | 4,817,637 | 4,835,375 | ||
Retained earnings | 5,428,407 | 4,984,302 | ||
Accumulated other comprehensive loss | (343,819) | (93,453) | ||
Less - treasury stock, at cost (40,644,602 shares in 2005 and | ||||
31,345,028 shares in 2004) | 2,161,960 | 1,432,019 | ||
TOTAL | 7,742,747 | 8,296,687 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $30,851,269 | $28,310,777 | ||
See Notes to Consolidated Financial Statements. |
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||||||
For the Years Ended December 31, | ||||||||||||||
2005 | 2004 | 2003 | ||||||||||||
(In Thousands) | ||||||||||||||
RETAINED EARNINGS | ||||||||||||||
Retained Earnings - Beginning of period | $4,984,302 | $4,502,508 | $3,938,693 | |||||||||||
Add: Earnings applicable to common stock | 898,331 | $898,331 | 909,524 | $909,524 | 926,943 | $926,943 | ||||||||
Deduct: | ||||||||||||||
Dividends declared on common stock | 453,657 | 427,740 | 362,941 | |||||||||||
Capital stock and other expenses | 569 | (10) | 187 | |||||||||||
Total | 454,226 | 427,730 | 363,128 | |||||||||||
Retained Earnings - End of period | $5,428,407 | $4,984,302 | $4,502,508 | |||||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||||||
Balance at beginning of period: | ||||||||||||||
Accumulated derivative instrument fair value changes | ($141,411) | ($25,811) | $17,313 | |||||||||||
Other accumulated comprehensive income (loss) items | 47,958 | 18,016 | (39,673) | |||||||||||
Total | (93,453) | (7,795) | (22,360) | |||||||||||
Net derivative instrument fair value changes | ||||||||||||||
arising during the period (net of tax (benefit) of ($159,236), ($74,082) and ($27,862)) |
(251,203) | (251,203) | (115,600) | (115,600) | (43,124) | (43,124) | ||||||||
Foreign currency translation (net of tax expense of $211, $659, and $1,459) |
602 | 602 | 1,882 | 1,882 | 4,169 | 4,169 | ||||||||
Minimum pension liability (net of tax expense (benefit) of ($9,176), $1,875, and $503) |
(15,773) | (15,773) | 2,762 | 2,762 | 1,153 | 1,153 | ||||||||
Net unrealized investment gains (net of tax expense of $10,573, $16,599, and $33,422) |
16,008 | 16,008 | 25,298 | 25,298 | 52,367 | 52,367 | ||||||||
Balance at end of period: | ||||||||||||||
Accumulated derivative instrument fair value changes | (392,614) | (141,411) | (25,811) | |||||||||||
Other accumulated comprehensive income items | 48,795 | 47,958 | 18,016 | |||||||||||
Total | ($343,819) | ($93,453) | ($7,795) | |||||||||||
Comprehensive Income | $647,965 | $823,866 | $941,508 | |||||||||||
PAID-IN CAPITAL | ||||||||||||||
Paid-in Capital - Beginning of period | $4,835,375 | $4,767,615 | $4,666,753 | |||||||||||
Add (Deduct): | ||||||||||||||
Issuance of equity units | (39,904) | - | - | |||||||||||
Common stock issuances related to stock plans | 22,166 | 67,760 | 100,862 | |||||||||||
Paid-in Capital - End of period | $4,817,637 | $4,835,375 | $4,767,615 | |||||||||||
See Notes to Consolidated Financial Statements. | ||||||||||||||
ENTERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Entergy Corporation and its direct and indirect subsidiaries. As required by generally accepted accounting principles, all significant intercompany transactions have been eliminated in the consolidated financial statements. The domestic utility companies and System Energy maintain accounts in accordance with FERC and other regulatory guidelines. Certain previously reported amounts have been reclassified to conform to current classifications, with no effect on net income or shareholders' equity. References to Entergy Louisiana are intended to apply both to Entergy Louisiana Holdings on a consolidated basis and to Entergy Louisiana, LLC.
Use of Estimates in the Preparation of Financial Statements
The preparation of Entergy Corporation's consolidated financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual results are different from the estimates used.
Revenues and Fuel Costs
The domestic utility companies generate, transmit, and distribute electric power primarily to retail customers in Arkansas, Louisiana, including the City of New Orleans, Mississippi, and Texas. Entergy Gulf States distributes gas to retail customers in and around Baton Rouge, Louisiana and Entergy New Orleans distributes gas to retail customers in the City of New Orleans. Entergy's Non-Utility Nuclear and Energy Commodity Services segments derive almost all of their revenue from sales of electric power generated by plants owned by them.
Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. To the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings. Entergy calculates the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in the domestic utility companies' various jurisdictions. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. Therefore, changes in price and volume differences resulting from factors such as weather affect the calculation of unbilled revenues from one period to the next, and may result in variability in reported revenues from one period to the next as prior estimates are so recorded and reversed.
The domestic utility companies' rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Because the fuel adjustment clause mechanism allows monthly adjustments to recover fuel costs, Entergy Louisiana, Entergy New Orleans, and the Louisiana portion of Entergy Gulf States include a component of fuel cost recovery in their unbilled revenue calculations. Where the fuel component of revenues is billed based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. Entergy Mississippi's fuel factor includes an energy cost rider that is adjusted quarterly. As discussed in Note 2 to the consolidated financial statements, the MPSC approved Entergy Mississippi's deferral of the refund of over-recoveries for the third quarte r of 2004 that would have been refunded in the first quarter of 2005. The deferred amount plus carrying charges was refunded in the second and third quarters of 2005. In the case of Entergy Arkansas and the Texas portion of Entergy Gulf States, their fuel under-recoveries are treated in the cash flow statements as regulatory investments because those companies are allowed by their regulatory jurisdictions to recover the fuel cost regulatory asset over longer than a twelve-month period, and the companies earn a carrying charge on the under-recovered balances.
System Energy's operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf, plus System Energy's effective interest cost for its debt allocable to its investment in Grand Gulf.
Property, Plant, and Equipment
Property, plant, and equipment is stated at original cost. For the domestic utility companies and System Energy, the original cost of plant retired or removed, less salvage, is charged to accumulated depreciation. Normal maintenance, repairs, and minor replacement costs are charged to operating expenses. Substantially all of the domestic utility companies' and System Energy's plant is subject to mortgage liens.
Electric plant includes the portions of Grand Gulf and Waterford 3 that have been sold and leased back. For financial reporting purposes, these sale and leaseback arrangements are reflected as financing transactions.
Net property, plant, and equipment (including property under capital lease and associated accumulated amortization) by business segment and functional category, as of December 31, 2005 and 2004, is shown below:
|
|
|
|
|
|
|
|
|
(In Millions) |
||||||||
Production |
|
|
|
|
|
|
|
|
Nuclear |
|
$7,390 |
|
$5,955 |
|
$1,435 |
|
$- |
Other |
|
1,590 |
|
1,321 |
|
- |
|
269 |
Transmission |
|
2,394 |
|
2,394 |
|
- |
|
- |
Distribution |
|
4,599 |
|
4,599 |
|
- |
|
- |
Other |
|
992 |
|
989 |
|
- |
|
3 |
Construction work in progress |
|
1,524 |
|
1,268 |
|
232 |
|
24 |
Nuclear fuel (leased and owned) |
|
708 |
|
373 |
|
335 |
|
- |
Property, plant, and equipment - net |
|
$19,197 |
|
$16,899 |
|
$2,002 |
|
$296 |
|
|
|
|
|
|
|
|
|
(In Millions) |
||||||||
Production |
|
|
|
|
|
|
|
|
Nuclear |
|
$7,308 |
|
$5,987 |
|
$1,321 |
|
$- |
Other |
|
1,533 |
|
1,228 |
|
- |
|
305 |
Transmission |
|
2,182 |
|
2,182 |
|
- |
|
- |
Distribution |
|
4,672 |
|
4,672 |
|
- |
|
- |
Other |
|
1,123 |
|
1,115 |
|
- |
|
8 |
Construction work in progress |
|
1,198 |
|
924 |
|
244 |
|
30 |
Nuclear fuel (leased and owned) |
|
583 |
|
297 |
|
286 |
|
- |
Asset retirement obligation |
|
97 |
|
97 |
|
- |
|
- |
Property, plant, and equipment - net |
|
$18,696 |
|
$16,502 |
|
$1,851 |
|
$343 |
Depreciation is computed on the straight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation rates on average depreciable property approximated 2.7% in 2005 and 2.8% in 2004 and 2003. Included in these rates are the depreciation rates on average depreciable utility property of 2.6% in 2005, 2.7% in 2004, and 2.8% in 2003 and the depreciation rates on average depreciable non-utility property of 3.2% in 2005, 3.8% in 2004, and 3.3% in 2003.
Non-utility property - at cost (less accumulated depreciation) is reported net of accumulated depreciation of $162.2 million and $152.8 million as of December 31, 2005 and 2004, respectively.
Jointly-Owned Generating Stations
Certain Entergy subsidiaries jointly own electric generating facilities with third parties. The investments and expenses associated with these generating stations are recorded by the Entergy subsidiaries to the extent of their respective undivided ownership interests. As of December 31, 2005, the subsidiaries' investment and accumulated depreciation in each of these generating stations were as follows:
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
||
U.S. Utility: |
|
|
|
|
|
|
|||||
Grand Gulf |
Unit 1 |
|
Nuclear |
|
1,270 |
|
90.00% (2) |
|
$3,680 |
|
$1,890 |
Independence |
Units 1 and 2 |
|
Coal |
|
1,630 |
|
47.90% |
|
$466 |
|
$260 |
White Bluff |
Units 1 and 2 |
|
Coal |
|
1,635 |
|
57.00% |
|
$430 |
|
$277 |
Roy S. Nelson |
Unit 6 |
|
Coal |
|
550 |
|
70.00% |
|
$405 |
|
$249 |
Big Cajun 2 |
Unit 3 |
|
Coal |
|
575 |
|
42.00% |
|
$233 |
|
$134 |
Energy Commodity Services: |
|||||||||||
Harrison County |
|
|
Gas |
|
550 |
|
60.90% |
|
$179 |
|
$10 |
Warren |
Gas |
300 |
75.00% |
$24 |
$9 |
(1) |
"Total Megawatt Capability" is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
(2) |
Includes an 11.5% leasehold interest held by System Energy. System Energy's Grand Gulf lease obligations are discussed in Note 9 to the consolidated financial statements. |
Nuclear Refueling Outage Costs
Entergy records nuclear refueling outage costs in accordance with regulatory treatment and the matching principle. These refueling outage expenses are incurred to prepare the units to operate for the next operating cycle without having to be taken off line. Except for the River Bend plant, the costs are deferred during the outage and amortized over the period to the next outage. In accordance with the regulatory treatment of the River Bend plant, River Bend's costs are accrued in advance and included in the cost of service used to establish retail rates. Entergy Gulf States relieves the accrued liability when it incurs costs during the next River Bend outage.
Allowance for Funds Used During Construction (AFUDC)
AFUDC represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction in the U.S. Utility segment. Although AFUDC increases both the plant balance and earnings, it is realized in cash through depreciation provisions included in rates.
Income Taxes
Entergy Corporation and the majority of its subsidiaries file a United States consolidated federal income tax return. Entergy Louisiana, LLC, formed December 31, 2005, is not a member of the consolidated group and files a separate federal income tax return.
Income taxes are allocated to the subsidiaries in proportion to their contribution to consolidated taxable income. In accordance with SFAS 109, "Accounting for Income Taxes," deferred income taxes are recorded for all temporary differences between the book and tax basis of assets and liabilities, and for certain credits available for carryforward.Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates in the period in which the tax or rate was enacted.
Investment tax credits are deferred and amortized based upon the average useful life of the related property, in accordance with ratemaking treatment.
Earnings per Share
The following table presents Entergy's basic and diluted earnings per share (EPS) calculation included on the consolidated income statement:
|
|
For the Years Ended December 31, |
|||||||||||
|
|
2005 |
|
2004 |
|
2003 |
|||||||
|
|
(In Millions, Except Per Share Data) |
|||||||||||
|
|
|
|
$/share |
|
|
|
$/share |
|
|
|
$/share |
|
Income from continuing operations before cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average dilutive effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (1) |
|
4.0 |
|
(0.085) |
|
4.1 |
|
(0.071) |
|
4.1 |
|
(0.063) |
|
Deferred Units |
|
0.3 |
|
(0.006) |
|
0.2 |
|
(0.004) |
|
0.2 |
|
(0.003) |
|
Average number of common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings applicable to common stock |
|
$898.3 |
|
|
|
$909.5 |
|
|
|
$926.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average dilutive effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (1) |
|
4.0 |
|
(0.081) |
|
4.1 |
|
(0.071) |
|
4.1 |
|
(0.073) |
|
Deferred Units |
|
0.3 |
|
(0.005) |
|
0.2 |
|
(0.004) |
|
0.2 |
|
(0.004) |
|
Average number of common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Options to purchase approximately 1,727,579 common stock shares in 2005, 3,319 common stock shares in 2004, and 15,231 common stock shares in 2003 at various prices were outstanding at the end of those years that were not included in the computation of diluted earnings per share because the exercise prices were greater than the common share average market price at the end of each of the years presented. |
Stock-based Compensation Plans
Entergy grants stock options to key employees of the Entergy subsidiaries, which is described more fully in Note 7 to the consolidated financial statements. Effective January 1, 2003, Entergy prospectively adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based Compensation." Awards under Entergy's plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2004 and 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123. There is no pro forma effect for 2005 because all non-vested awards are accounted for at fair value. Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects, for 2005 is $7.8 million. The following table illustrates the effect on net income and earnings per sha re if Entergy would have historically applied the fair value based method of accounting to stock-based employee compensation.
|
For the Years Ended December 31, |
|||
|
|
2004 |
|
2003 |
|
(In Thousands, Except Per Share Data) |
|||
|
|
|
|
|
Earnings applicable to common stock |
|
$909,524 |
|
$926,943 |
Add back: Stock-based compensation expense |
|
|
|
|
Deduct: Total stock-based employee compensation |
|
|
|
|
Pro forma earnings applicable to common stock |
|
$897,997 |
|
$905,243 |
|
|
|
|
|
Earnings per average common share: |
|
|
|
|
Basic |
|
$4.01 |
|
$4.09 |
Basic - pro forma |
|
$3.96 |
|
$3.99 |
|
|
|
|
|
Diluted |
|
$3.93 |
|
$4.01 |
Diluted - pro forma |
|
$3.88 |
|
$3.92 |
Application of SFAS 71
The domestic utility companies and System Energy currently account for the effects of regulation pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation." This statement applies to the financial statements of a rate-regulated enterprise that meets three criteria. The enterprise must have rates that (i) are approved by a body empowered to set rates that bind customers (its regulator); (ii) are cost-based; and (iii) can be charged to and collected from customers. These criteria may also be applied to separable portions of a utility's business, such as the generation or transmission functions, or to specific classes of customers. If an enterprise meets these criteria, it capitalizes costs that would otherwise be charged to expense if the rate actions of its regulator make it probable that those costs will be recovered in future revenue. Such capitalized costs are reflected as regulatory assets in the accompanying financial statements. A significant majority o f Entergy's regulatory assets, net of related regulatory and deferred tax liabilities, earn a return on investment during their recovery periods, or Entergy expects that they will earn a return. SFAS 71 requires that rate-regulated enterprises assess the probability of recovering their regulatory assets. When an enterprise concludes that recovery of a regulatory asset is no longer probable, the regulatory asset must be removed from the entity's balance sheet.
SFAS 101, "Accounting for the Discontinuation of Application of FASB Statement No. 71," specifies how an enterprise that ceases to meet the criteria for application of SFAS 71 for all or part of its operations should report that event in its financial statements. In general, SFAS 101 requires that the enterprise report the discontinuation of the application of SFAS 71 by eliminating from its balance sheet all regulatory assets and liabilities related to the applicable segment. Additionally, if it is determined that a regulated enterprise is no longer recovering all of its costs and therefore no longer qualifies for SFAS 71 accounting, it is possible that an impairment may exist that could require further write-offs of plant assets.
EITF 97-4: "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and 101" specifies that SFAS 71 should be discontinued at a date no later than when the effects of a transition to competition plan for all or a portion of the entity subject to such plan are reasonably determinable. Additionally, EITF 97-4 promulgates that regulatory assets to be recovered through cash flows derived from another portion of the entity that continues to apply SFAS 71 should not be written off; rather, they should be considered regulatory assets of the segment that will continue to apply SFAS 71.
See Note 2 to the consolidated financial statements for discussion of transition to competition activity in the retail regulatory jurisdictions served by the domestic utility companies. Only Texas has a currently enacted retail open access law, but Entergy believes that significant issues remain to be addressed by regulators, and the enacted law does not provide sufficient detail to reasonably determine the impact on Entergy Gulf States' regulated operations.
Cash and Cash Equivalents
Entergy considers all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities of more than three months are classified as other temporary investments on the balance sheet.
Other Temporary Investments
The consolidated balance sheet as of December 31, 2004 reflects a reclassification from cash and cash equivalents to other temporary investments of $188 million of instruments used in Entergy's cash management program. A corresponding change was made to the consolidated statement of cash flows for the years ended December 31, 2004 and 2003 resulting in reductions of $188 million and $185 million, respectively, in the amounts presented as cash and cash equivalents as of December 31, 2004 and December 31, 2003. This reclassification is to present certain highly-liquid auction rate securities as short-term investments rather than as cash equivalents due to the stated tenor of the maturities of these investments. Entergy actively invests its available cash balance in financial instruments, which prior to September 2005 included auction rate securities that have stated maturities of 20 years or more. The auction rate securities provided a high degree of liquidity through features such a s 7 and 28 day auctions that allow for the redemption of the securities at their face amount plus earned interest. Because Entergy intended to sell these instruments within one year or less, typically within 28 days of the balance sheet date, they are classified as current assets. As of December 31, 2005, Entergy no longer holds any of these auction rate securities.
Investments
Entergy applies the provisions of SFAS 115, "Accounting for Investments for Certain Debt and Equity Securities," in accounting for investments in decommissioning trust funds. As a result, Entergy records the decommissioning trust funds at their fair value on the consolidated balance sheet. Because of the ability of the domestic utility companies and System Energy to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the domestic utility companies and System Energy have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the nonregulated portion of River Bend, Entergy Gulf States has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits. Decommissioning trust funds for Pilgrim, Indian Point 2, and Vermont Yankee do not receive regulatory treatment. Accordingly, unrealized gains and losses recorded on the asse ts in these trust funds are recognized in the accumulated other comprehensive income component of shareholders' equity because these assets are classified as available for sale. See Note 15 to the consolidated financial statements for details on the decommissioning trust funds. Entergy records an impairment on investments when the fair market value is less than the carrying value of the asset and that condition is considered other than temporary.
Equity Method Investees
Entergy owns investments that are accounted for under the equity method of accounting because Entergy's ownership level results in significant influence, but not control, over the investee and its operations. Entergy records its share of earnings or losses of the investee based on the change during the period in the estimated liquidation value of the investment, assuming that the investee's assets were to be liquidated at book value. In accordance with this method, earnings are allocated to owners or members based on what each partner would receive from its capital account if, hypothetically, liquidation were to occur at the balance sheet date and amounts distributed were based on recorded book values. Entergy discontinues the recognition of losses on equity investments when its share of losses equals or exceeds its carrying amount of investee plus any advances made or commitments to provide additional financial support. See Note 12 to the co nsolidated financial statements for additional information regarding Entergy's equity method investments.
Derivative Financial Instruments and Commodity Derivatives
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," requires that all derivatives be recognized in the balance sheet, either as assets or liabilities, at fair value, unless they meet the normal purchase, normal sales criteria. The changes in the fair value of recognized derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction.
Contracts for commodities that will be delivered in quantities expected to be used or sold in the ordinary course of business, including certain purchases and sales of power and fuel, are not classified as derivatives. These contracts are exempted under the normal purchase, normal sales criteria of SFAS 133. Revenues and expenses from these contracts are reported on a gross basis in the appropriate revenue and expense categories as the commodities are received or delivered.
For other contracts for commodities in which Entergy is hedging the variability of cash flows related to a variable-rate asset, liability, or forecasted transactions that qualify as cash flow hedges, the changes in the fair value of such derivative instruments are reported in other comprehensive income. To qualify for hedge accounting, the relationship between the hedging instrument and the hedged item must be documented to include the risk management objective and strategy and, at inception and on an ongoing basis, the effectiveness of the hedge in offsetting the changes in the cash flows of the item being hedged. Gains or losses accumulated in other comprehensive income are reclassified as earnings in the periods in which earnings are affected by the variability of the cash flows of the hedged item. The ineffective portions of all hedges are recognized in current-period earnings.
Impairment of Long-Lived Assets
Entergy periodically reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the undiscounted net cash flows expected to result from such operations and assets. Projected net cash flows depend on the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy over the remaining life of the assets. See Note 11 to the consolidated financial statements for a discussion of asset impairments recognized by Entergy in 2005 and 2004.
River Bend AFUDC
The River Bend AFUDC gross-up is a regulatory asset that represents the incremental difference imputed by the LPSC between the AFUDC actually recorded by Entergy Gulf States on a net-of-tax basis during the construction of River Bend and what the AFUDC would have been on a pre-tax basis. The imputed amount was only calculated on that portion of River Bend that the LPSC allowed in rate base and is being amortized over the estimated remaining economic life of River Bend.
Transition to Competition Liabilities
In conjunction with electric utility industry restructuring activity in Texas, regulatory mechanisms were established to mitigate potential stranded costs. Texas restructuring legislation allowed depreciation on transmission and distribution assets to be directed toward generation assets. The liability recorded as a result of this mechanism is classified as "transition to competition" deferred credits on the balance sheet.
Reacquired Debt
The premiums and costs associated with reacquired debt of the domestic utility companies and System Energy (except that portion allocable to the deregulated operations of Entergy Gulf States) are included in regulatory assets and are being amortized over the life of the related new issuances, in accordance with ratemaking treatment.
Foreign Currency Translation
All assets and liabilities of Entergy's foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in the comprehensive income component of shareholders' equity. Current exchange rates are used for U.S. dollar disclosures of future obligations denominated in foreign currencies.
New Accounting Pronouncements
SFAS 123R, "Share-Based Payment" was issued in December 2004 and is effective for Entergy in the first quarter of 2006. SFAS 123R requires all employers to account for share-based payments at fair value and also provides guidance on determining the assumptions to estimate fair value. SFAS 123R also provides guidance on how to account for differences in the amounts of deferred taxes initially recorded when the options are recorded as expense and the amount of expense deducted on a company's tax return when the options are actually exercised. Entergy began voluntarily expensing its stock options effective January 1, 2003 in accordance with SFAS 148, "Stock-Based Compensation - Transition and Disclosure." Entergy is in the process of finalizing its evaluation of the reporting and disclosure issues resulting from the adoption of SFAS 123R but does not expect the effect of the adoption of this standard to be material to Entergy's financial position or results of operations.
As discussed in Note 8 to the consolidated financial statements, Entergy adopted FIN 47, "Accounting for Conditional Asset Retirement Obligations" during the fourth quarter of 2005. FIN 47 requires that a liability be recorded currently for costs associated with a legal obligation to perform an asset retirement obligation activity for which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity but for which the obligation to perform the asset retirement activity is unconditional. FIN 47 requires that a liability be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.
SFAS 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4" and SFAS 153, "Exchanges of Nonmonetary Assets", were issued during the fourth quarter of 2004 and are effective for Entergy in 2006 and 2005, respectively. SFAS 154, "Accounting Changes and Error Corrections" was issued in 2005 and is effective for Entergy in 2006. Entergy does not expect the impact of the issuance of these standards to be material to its financial position or results of operations.
NOTE 2. RATE AND REGULATORY MATTERS
Regulatory Assets
Other Regulatory Assets
The domestic utility companies and System Energy are subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. In addition to the regulatory assets that are specifically disclosed on the face of the balance sheets, the table below provides detail of "Other regulatory assets" that are included on the balance sheets as of December 31, 2005 and 2004:
2005 |
2004 |
|||
(In Millions) |
||||
Asset Retirement Obligation - recovery dependent upon timing of decommissioning |
|
|
||
Deferred fuel - non-current - recovered through rate riders when rates are |
|
|
||
Depreciation re-direct - recovery begins at start of retail open access (Note 1) |
79.1 |
79.1 |
||
DOE Decommissioning and Decontamination Fees - recovered through fuel rates until |
|
|
||
Low-level radwaste |
- |
19.4 |
||
Pension costs (Note 10) |
396.1 |
207.3 |
||
Postretirement benefits - recovered through 2012 (Note 10) |
16.8 |
19.1 |
||
Provision for storm damages - recovered through cost of service (a) |
695.8 |
124.5 |
||
Removal costs - recovered through depreciation rates (Note 8) |
140.4 |
53.2 |
||
Deferred capacity - recovery timing will be determined by the LPSC in the formula rate plan |
|
|
||
River Bend AFUDC - recovered through August 2025 (Note 1) |
35.6 |
37.5 |
||
Sale-leaseback deferral - recovered through June 2014 (Note 9) |
121.4 |
127.3 |
||
Spindletop gas storage facility - recovered through December 2032 |
40.6 |
42.3 |
||
Unamortized loss on reaquired debt - recovered over term of debt |
165.1 |
169.9 |
||
Other - various |
53.7 |
97.0 |
||
Total |
$2,133.7 |
$1,429.3 |
As a result of Hurricane Katrina and Hurricane Rita that hit Entergy's service territory in August and September 2005, Entergy has recorded accruals for the estimated storm restoration costs. Entergy recorded some of these costs as regulatory assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. Entergy is pursuing a broad range of initiatives to recover storm restoration costs. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for Hurricanes Katrina and Rita, and pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies. |
In December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. The notice proposes recovery of approximately $14.7 million, including carrying charges, annually over a five-year period. A hearing on this matter is expected in April 2006. Entergy Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration costs associated with the hurricanes incurred after November 30, 2005 and to reflect receipt of insurance and federal aid.
In December 2005, Entergy Gulf States filed with the LPSC for interim recovery of $141 million of storm costs. The filing proposes implementing an $18.7 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Gulf States recover $850,000 per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Gulf States' interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $6 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Gulf States of 15% of the difference between the February 2006 fuel adjustment clause and th e fuel adjustment clause in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $6 million cap is reached. Beginning in September 2006, Entergy Gulf States' interim storm cost recovery of $850,000 per month shall be through base rates. In addition, all excess earnings that Entergy Gulf States may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery.
In December 2005, Entergy Louisiana filed with the LPSC for interim recovery of $355 million of storm costs. The filing proposes implementing a $41.8 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Louisiana recover $2 million per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Louisiana's interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $14 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Louisiana of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment clause in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $14 million cap is reached. Beginning in September 2006, Entergy Louisiana's interim storm cost recovery of $2 million per month shall be through base rates. In addition, all excess earnings that Entergy Louisiana may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery.
Deferred fuel costs
The domestic utility companies are allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric and gas rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and the current fuel and purchased power costs is recorded as "Deferred fuel costs" on the domestic utility companies' financial statements. The table below shows the amount of deferred fuel costs as of December 31, 2005 and 2004 that Entergy expects to recover or (refund) through the fuel mechanisms of the domestic utility companies, subject to subsequent regulatory review.
|
2005 |
|
2004 |
|
(In Millions) |
||
|
|
|
|
Entergy Arkansas |
$204.2 |
|
$7.4 |
Entergy Gulf States |
$324.4 |
|
$90.1 |
Entergy Louisiana |
$21.9 |
|
$8.7 |
Entergy Mississippi |
$114.0 |
|
($22.8) |
Entergy New Orleans |
N/A (a) |
|
$2.6 |
(a) |
Not included due to the deconsolidation of Entergy New Orleans in 2005. |
Entergy Arkansas
In March 2005, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using 1,000 kWh per month, increased 31 percent primarily attributable to a true-up adjustment for an under-recovery balance of $11.2 million and a nuclear refueling adjustment resulting from outages scheduled in 2005 at ANO 1 and 2 and Grand Gulf.
In September 2005, Entergy Arkansas filed with the APSC an interim energy cost rate per the energy cost recovery rider that provides for an interim adjustment should the cumulative over- or under-recovery for the energy period exceed 10 percent of the energy costs for that period. As of the end of July 2005, the cumulative under-recovery of fuel and purchased power expenses had exceeded the 10 percent threshold due to increases in purchased power expenditures resulting from higher natural gas prices. The interim rate became effective the first billing cycle in October 2005. In early October 2005, the APSC initiated an investigation into Entergy Arkansas' interim rate. The investigation is focused on Entergy Arkansas' 1) gas contracting, portfolio, and hedging practices; 2) wholesale purchases during the period; 3) management of the coal inventory at its coal generation plants; and 4) response to the contractual failure of the railroads to provide coal deliveries. The APSC established a procedural schedule with testimony from Entergy Arkansas, the APSC Staff, and intervenors culminating in a public hearing in May 2006.
Entergy Gulf States (Texas)
In the Texas jurisdiction, Entergy Gulf States' rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including carrying charges, not recovered in base rates. Under the current methodology, semi-annual revisions of the fixed fuel factor may be made in March and September based on the market price of natural gas. Entergy Gulf States will likely continue to use this methodology until the start of retail open access, which has been delayed. The amounts collected under Entergy Gulf States' fixed fuel factor and any interim surcharge implemented until the date retail open access commences are subject to fuel reconciliation proceedings before the PUCT. In the Texas jurisdiction, Entergy Gulf States' deferred electric fuel costs are $203.2 million as of December 31, 2005, which includes the following:
Amount |
||
(In Millions) |
||
|
||
Under-recovered fuel costs for the period 8/05 - 12/05 |
$101.0 |
|
Items to be addressed as part of unbundling |
$29.0 |
|
Other (includes imputed capacity charges) |
$27.1 |
The PUCT has ordered that the imputed capacity charges be excluded from fuel rates and therefore recovered through base rates. Entergy Gulf States filed with the PUCT in July 2005 a request for implementation of an incremental purchased capacity recovery rider, consistent with the recently passed Texas legislation discussed below under "Electric Industry Restructuring and the Continued Application of SFAS 71." The rider requested $23.1 million annually in incremental revenues on a Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligation to purchase power from Entergy Louisiana's recently acquired Perryville plant, over what is already in Entergy Gulf States' base rates. Entergy Gulf States reached an initial agreement with parties that the date upon which cost recovery and cost reconciliation would begin is September 1, 2005. A further non-unanimous settlement was reached with most of the partie s that allows for the rider to be implemented effective December 1, 2005 and collect $18 million annually. The settlement also provides for a fuel reconciliation to be filed by Entergy Gulf States by May 15, 2006 that will resolve the remaining issues in the case with the exception of the amount of purchased power in current base rates and the costs to which load growth is attributed, both of which were settled. The hearing with respect to the non-unanimous settlement, which was opposed by the Office of Public Utility Counsel, was conducted on October 19, 2005 before the ALJ, who issued a Proposal for Decision supporting the settlement. In December 2005, the PUCT approved the settlement. The amounts collected by the purchased capacity recovery rider are subject to reconciliation.
In September 2005, Entergy Gulf States filed an application with the PUCT to implement a net $46.1 million interim fuel surcharge, including interest, to collect under-recovered fuel and purchased power expenses incurred from August 2004 through July 2005. The application was approved, and the surcharge will be collected over a twelve-month period beginning in January 2006. On March 1, 2006, Entergy Gulf States filed with the PUCT an application to implement an interim fuel surcharge in connection with the under-recovery of $97 million including interest of eligible fuel costs for the period August 2005 through January 2006. This surcharge is in addition to the interim surcharge that went into effect in January 2006. Entergy Gulf States has requested that the interim surcharge requested in its March 2006 filing be implemented by June 1, 2006 and remain in effect for twelve months. Amounts collected through the interim fuel surcharges are subject to final reconciliation in a future fue l reconciliation proceeding.
In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003 reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. This amount includes $8.6 million of under-recovered costs that Entergy Gulf States asked to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in the January 2001 proceeding, discussed below, which is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommends disallowing $10.7 million (excluding interest) related to these two issues. In April 2005, the PUCT issued an order reversing in part the ALJ's Proposal for Decision and allowing Entergy Gulf States to recover a part of its request related to the imputed capacity and River Bend payment issues. The PUCT's order reduced the disallowance in the case to $8.3 million. Both Entergy Gulf States and certain Cities served by Entergy Gulf States filed motions for rehearing on these issues which were denied by the PUCT. Entergy Gulf States and certain Cities filed appeals to the Travis County District Court. The appeals are pending. Any disallowance will be netted against Entergy Gulf States' under-recovered costs and will be included in its deferred fuel costs balance.
In January 2001, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period from March 1999 through August 2000. Entergy Gulf States was reconciling approximately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested authority to collect $28 million, plus interest, of under-recovered fuel and purchased power costs. In August 2002, the PUCT reduced Entergy Gulf States' request to approximately $6.3 million, including interest through July 31, 2002. Approximately $4.7 million of the total reduction to the requested surcharge relates to nuclear fuel costs that the PUCT deferred ruling on at that time. In October 2002, Entergy Gulf States appealed the PUCT's final order in Texas District Court. In its appeal, Entergy Gulf States is challenging the PUCT's disallowance of approximately $4.2 million related to imputed capacity costs and its disallowance related to costs for energy delivered from the 30% non-regulate d share of River Bend. The case was argued before the Travis County District Court in August 2003 and the Travis County District Court judge affirmed the PUCT's order. In October 2003, Entergy Gulf States appealed this decision to the Court of Appeals. Oral argument before the appellate court occurred in September 2004, and the Court denied Entergy Gulf States' appeal. In October 2005, Entergy Gulf States filed a petition for review by the Texas Supreme Court, and in December 2005, the Texas Supreme Court requested that responses be filed to Entergy Gulf States' petition as part of its ongoing consideration of whether to exercise its discretion to grant review of this matter. Those responses and Entergy Gulf States' reply to those responses were filed in January 2006.
Entergy Gulf States (Louisiana) and Entergy Louisiana
In Louisiana, Entergy Gulf States and Entergy Louisiana recover electric fuel and purchased power costs for the upcoming month based upon the level of such costs from the prior month. In Louisiana, Entergy Gulf States' purchased gas adjustments include estimates for the billing month adjusted by a surcharge or credit for deferred fuel expense arising from monthly reconciliations of actual fuel costs incurred with fuel cost revenues billed to customers.
In August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The global settlement approved by the LPSC in March 2005, discussed below in "Retail Rate Proceedings," resolves the uprate imprudence disallowance and is no longer at issue in this proceeding. Subsequent to the issuance of the audit report, the scope of this docket was expanded to include a review of annual reports on fuel and purchased power transactions with affiliates and a prudence review of transmi ssion planning issues. Also, in July 2005, the LPSC expanded the audit to include the years 2002 through 2004. A procedural schedule has been established and LPSC staff and intervenor testimony is due in April 2006.
In January 2003, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Gulf States and its affiliates pursuant to a November 1997 LPSC general order. The audit will include a review of the reasonableness of charges flowed by Entergy Gulf States through its fuel adjustment clause in Louisiana for the period January 1, 1995 through December 31, 2002. Discovery is underway, but a detailed procedural schedule extending beyond the discovery stage has not yet been established, and the LPSC staff has not yet issued its audit report. In June 2005, the LPSC expanded the audit to include the years through 2004.
In November 2005, the LPSC authorized its staff to initiate an expedited proceeding to audit the fuel and power procurement activities of Entergy Louisiana and Entergy Gulf States for the period January 1, 2005 through October 31, 2005.
Entergy Mississippi
Entergy Mississippi's rate schedules include an energy cost recovery rider which is adjusted quarterly to reflect accumulated over- or under-recoveries from the second prior quarter. In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 of $21.3 million were deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges was refunded through the energy cost recovery rider in the second and third quarters of 2005.
In May 2003, Entergy Mississippi filed and the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Under the MPSC's order, Entergy Mississippi deferred until 2004 the collection of fuel under-recoveries for the first and second quarters of 2003 that would have been collected in the third and fourth quarters of 2003, respectively. The deferred amount of $77.6 million plus carrying charges was collected through the energy cost recovery rider over a twelve-month period that began in January 2004.
Retail Rate Proceedings
Filings with the APSC
Retail Rates
No significant retail rate proceedings are pending in Arkansas at this time.
Filings with the PUCT and Texas Cities
Retail Rates
Entergy Gulf States is operating in Texas under a base rate freeze that has remained in effect during the delay in the implementation of retail open access in Entergy Gulf States' Texas service territory. As discussed in "Electric Industry Restructuring and the Continued Application of SFAS 71" below, a Texas law was enacted in June 2005 which includes provisions in the Texas legislation regarding Entergy Gulf States' ability to file a general rate case and to file for recovery of transition to competition costs. As authorized by the legislation, in August 2005, Entergy Gulf States filed with the PUCT an application for recovery of its transition to competition costs. Entergy Gulf States requested recovery of $189 million in transition to competition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The $189 million represents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to be incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. Entergy Gulf States has reached a unanimous settlement agreement in principle on all issues with the active parties in the transition to competition cost recovery case. The agreement in principle allows Entergy Gulf States to recover $14.5 million per year in transition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006, subject to refund. Entergy Gulf States expects that the PUCT will consider the formal settlement document, which is currently being developed, in the second quarter 2006.
The Texas law enacted also allowed Entergy Gulf States to file with the PUCT for recovery of certain incremental purchased capacity costs which was implemented effective December 1, 2005. This proceeding is discussed above under "Deferred Fuel Costs."
Recovery of River Bend Costs
In March 1998, the PUCT disallowed recovery of $1.4 billion of company-wide abeyed River Bend plant costs, which have been held in abeyance since 1988. Entergy Gulf States appealed the PUCT's decision on this matter to the Travis County District Court in Texas. In April 2002, the Travis County District Court issued an order affirming the PUCT's order on remand disallowing recovery of the abeyed plant costs. Entergy Gulf States appealed this ruling to the Third District Court of Appeals. In July 2003, the Third District Court of Appeals unanimously affirmed the judgment of the Travis County District Court. After considering the progress of the proceeding in light of the decision of the Court of Appeals, Entergy Gulf States accrued for the loss that would be associated with a final, non-appealable decision disallowing the abeyed plant costs. The net carrying value of the abeyed plant costs was $107.7 million at the time of the Court of Appeals decision. Accrual of the $10 7.7 million loss was recorded in the second quarter of 2003 as miscellaneous other income (deductions) and reduced net income by $65.6 million after-tax. In September 2004, the Texas Supreme Court denied Entergy Gulf States' petition for review, and Entergy Gulf States filed a motion for rehearing. In February 2005, the Texas Supreme Court denied the motion for rehearing, and the proceeding is now final.
Filings with the LPSC
Global Settlement including Entergy Gulf States and Entergy Louisiana
In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The net income effect of $48.6 million for Entergy Gulf States and $8.6 million for Entergy Louisiana was recognized primarily in 2004 when Entergy Gulf States and Entergy Louisiana recorded provisions for the expected outcome of the proceeding. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits were issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to Entergy Gulf States. Entergy Gulf States made its initial formula rate plan filing in June 2005, as discussed below. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States.
Retail Rates - Electric
(Entergy Louisiana)
Entergy Louisiana made a rate filing with the LPSC requesting a base rate increase in January 2004. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that included an annual base rate increase of approximately $18.3 million that was implemented, subject to refund, effective with May 2005 billings. In May 2005, the LPSC approved a modified settlement which, among other things, reduces depreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change in rates. Subsequently, in June 2005, Entergy Louisiana made a revised compliance filing with the LPSC supporting a revised depreciation rate for Waterford 3, which reflects the removal of interim additions, and a rate increase from the purchase of the Perryville power plant, which results in a net $0.8 million annual rate reduction. Entergy Louisiana reduced rates effective with the first billing cycle in July 2005 and refunded excess revenue collected dur ing May 2005, including interest, in August 2005.
The May 2005 rate settlement includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initial formula rate plan filing will be in May 2006 based on a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.
(Entergy Gulf States)
In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan with an ROE mid-point of 10.5%.
In January 2006, Entergy Gulf States filed with the LPSC its gas rate stabilization plan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. Approval by the LPSC and implementation are not expected until the second quarter of 2006.
Filings with the MPSC
Entergy Mississippi made its annual formula rate plan filing with the MPSC in March 2005 based on a 2004 test year. In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on a performance-adjusted ROE mid-point of 10.50%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.
Power Management Rider
The MPSC approved the purchase of the Attala power plant in November 2005. In December 2005, the MPSC issued an order approving the investment cost recovery through its power management rider and limited the recovery to a period that begins with the closing date of the purchase and ends the earlier of the date costs are incorporated into base rates or December 31, 2006. The MPSC order also provided that any reserve equalization benefits be credited to the annual ownership costs beginning with the date that Entergy Mississippi begins recovery of the Hurricane Katrina restoration costs or July 1, 2006, whichever is earlier. On December 9, 2005, Entergy Mississippi filed a compliance rider.
Filings with the City Council
Formula Rate Plans
In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings showed that a decrease of $0.2 million in electric revenues was warranted and an increase of $3.9 million in gas revenues was warranted. In addition, in May 2005, Entergy New Orleans filed with the City Council a request for continuation of the formula rate plans and generation performance-based rate plan (G-PBR) for an additional three years. In August 2005, Entergy New Orleans, the City Council advisors, and the intervenors entered into an agreement in principle which provided, among other things, for a reduction in the Customer Care System investment of $3.2 million and for a reduction in Entergy New Orleans' electric base rates of $2.5 million and no change in Entergy New Orleans' gas base rates. The agreement provided for the continuation of the electric and gas formula rate plans for two more annual cycles, effective September 1, 2005, with a target eq uity ratio of 45% as well as a mid-point return on equity (ROE) of 10.75%. The ROE band-width is 100 basis points from the mid-point for electric operations. For gas operations, the ROE band-width is 50 basis points from the mid-point and zero basis points for the 2005 evaluation period. The agreement in principle also includes the continuation and modification of the G-PBR by separating the operation of the G-PBR from the formula rate plan so that the core business' electric rates are not set on a prospective basis by reference to G-PBR earnings. The agreement in principle provided for a $4.5 million cap on Entergy New Orleans' share of G-PBR savings. The G-PBR plan, however, has been temporarily suspended due to impacts from Hurricane Katrina. Entergy New Orleans will notify the City Council's advisors and the City Council at such time as it is reasonable to resume the operation of the G-PBR.
In August 2005, prior to Hurricane Katrina, the Council Utility, Cable and Telecommunications Committee voted to recommend to the City Council a resolution approving this agreement in principle. The City Council was to consider this recommendation at its regularly scheduled meeting on September 1, 2005, but this meeting did not occur due to Hurricane Katrina. On August 31, 2005, the chairman of the Council Utility, Cable and Telecommunications Committee issued a letter authorizing Entergy New Orleans to implement the agreement in principle in accordance with the resolution previously considered by this Council committee, and advising Entergy New Orleans that the City Council would consider the ratification of this letter authorization at the first available opportunity. On September 27, 2005, the City Council ratified the August 31, 2005 letter, and deemed the resolution approving the agreement in principle to be effective as of September 1, 2005.
Fuel Adjustment Clause Litigation
In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plaintiffs also se ek to recover interest and attorneys' fees. Entergy filed exceptions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over these issues rests with the City Council and FERC. In March 2004, the plaintiffs supplemented and amended their petition. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. The suit in state court has been stayed by stipulation of the parties pending review of the decision by the City Council in the proceeding discussed in the next paragraph.
Plaintiffs also filed a corresponding complaint with the City Council in order to initiate a review by the City Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed on behalf of the plaintiffs in this proceeding asserting, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in Entergy New Orleans customers being overcharged by more than $100 million over a period of years. Hearings were held in February and March 2002. In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegat ion that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs appealed the City Council resolution to the state courts. On May 26, 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiff's claim that the refund amount should be higher.
In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal. Subsequent to Entergy New Orleans' filing of a bankruptcy petition in the Eastern District of Louisiana, Entergy New Orleans filed a Notice of Stay with the Court of Appeal. The Bankruptcy Court lifted the stay with respect to the plaintiffs' appeal of the Civil District Court decision, but the class action lawsuit remains stayed. In February 2006, Entergy New Orleans filed a notice removing the class action lawsuit from the Civil District Court to the U.S. District Court for the Eastern District of Louisiana. Additionally, in the Entergy New Orleans bankruptcy proceeding, the named plaintiffs in the Entergy New Orleans fuel clause lawsuit, together with the named plaintiffs in the Entergy New Orleans rate of return lawsuit, filed a Complaint for Declaratory Judgment asking the court to declare that Entergy New Orleans, Entergy Corporation, and Entergy Services are a single business enterprise, and as such, are liable in solido with Entergy New Orleans for any claims asserted in the Entergy New Orleans fuel clause lawsuit and the Entergy New Orleans rate of return lawsuit, and alternatively, that the automatic stay be lifted to permit the movants to pursue the same relief in sate court. Answers were due in this adversary proceeding in February 2006, but Entergy New Orleans has requested an extension to answer until March 2006.
Electric Industry Restructuring and the Continued Application of SFAS 71
Although Arkansas and Texas enacted retail open access laws, the retail open access law in Arkansas has now been repealed. Retail open access in Entergy Gulf States' service territory in Texas has been delayed. Entergy believes that significant issues remain to be addressed by Texas regulators, and the enacted law does not provide sufficient detail to allow Entergy Gulf States to reasonably determine the impact on Entergy Gulf States' regulated operations. Entergy therefore continues to apply regulatory accounting principles to the retail operations of all of the domestic utility companies.
Texas
(Entergy Gulf States)
As ordered by the PUCT, in January 2003, Entergy Gulf States filed its proposal for an interim solution (retail open access without a FERC-approved RTO), which among other elements, included:
After considering the proposal, in an April 2003 order the PUCT set forth a sequence of proceedings and activities designed to initiate an interim solution. These proceedings and activities included initiating a proceeding to certify an independent organization to administer market protocols and ensure nondiscriminatory access to transmission and distribution systems.
In July 2004, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have appealed the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.
In June 2005, a Texas law was enacted which provides that:
Entergy Gulf States made the January 2006 filing regarding the identification of power region(s) required by the 2005 legislation, and based on the statutory requirements for the certification of a qualified power region (QPR), previous PUCT rulings, and Entergy Gulf States' geographical location, Entergy Gulf States identified three potential power regions:
Based on previous rulings of the PUCT, and absent reconsideration of those rulings, Entergy Gulf States believes that the third alternative - an ICT operating in Entergy's market area - is not likely to be a viable QPR alternative at this time. Accordingly, while noting this alternative, Entergy Gulf States' filing focuses on the first two alternatives, which are expected to meet the statutory requirements for certification so long as certain key implementation issues can be resolved. Entergy Gulf States' filing enumerated and discussed the corresponding steps and a high-level schedule associated with certifying either of these two power regions.
Entergy Gulf States recommended that the PUCT open a project for the purpose of involving stakeholders in the selection of the single power region that Entergy Gulf States should request for certification. Entergy Gulf States notes that House Bill 1567 also directs Entergy Gulf States to file a transition to competition filing no later than January 1, 2007. The contents of the January 1, 2007 filing will be affected by the power region selected. Accordingly, Entergy Gulf States recommended that the goal of the project should be to reach consensus on a power region in a timely manner to inform Entergy Gulf States' January 1, 2007 filing.
NOTE 3. INCOME TAXES
Income tax expenses from continuing operations for 2005, 2004, and 2003 consist of the following:
|
|
2005 |
2004 |
|
2003 |
|
|
|
(In Thousands) |
||||
Current: |
|
|
|
|
|
|
Federal (a)(b) |
|
($306,524) |
|
$67,924 |
|
($725,319) |
Foreign |
|
13,290 |
|
(2,231) |
|
8,284 |
State (a)(b) |
|
(27,212) |
|
38,324 |
|
23,316 |
Total (a)(b) |
|
(320,446) |
|
104,017 |
|
(693,719) |
Deferred - net |
|
898,384 |
|
282,275 |
|
1,218,796 |
Investment tax credit |
|
|
|
|
|
|
adjustments - net |
|
(18,654) |
|
(20,987) |
|
(27,644) |
Income tax expense from continuing |
|
$559,284 |
|
$365,305 |
|
$497,433 |
(a) |
The actual cash taxes paid were $98,072 in 2005, $28,241 in 2004, and $188,709 in 2003. Entergy Louisiana's mark-to-market tax accounting election significantly reduced taxes paid in 2002. In 2001, Entergy Louisiana changed its method of accounting for tax purposes related to its wholesale electric power contracts. The most significant of these is the contract to purchase power from the Vidalia project (the contract is discussed in Note 8 to the consolidated financial statements). The new tax accounting method has provided a cumulative cash flow benefit of approximately $664 million through 2005, which is expected to reverse in the years 2006 through 2031 depending on several variables, including the price of power. The election did not reduce book income tax expense. |
(b) |
In 2003, the domestic utility companies and System Energy filed, with the IRS, a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $2.8 billion deduction on Entergy's 2003 income tax return. There was no cash benefit from the method change in 2003. In addition, on a consolidated basis, there was no cash benefit from this method change in 2004 or 2005. The IRS has issued new proposed regulations effective in 2005 that may preclude a significant portion of the benefit of this tax accounting method change. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold . This new method is also subject to IRS scrutiny. |
Total income taxes from continuing operations differ from the amounts computed by applying the statutory income tax rate to income before taxes. The reasons for the differences for the years 2005, 2004, and 2003 are:
|
|
2005 |
|
2004 |
|
2003 |
|
|
(In Thousands) |
||||
|
|
|
|
|
|
|
Computed at statutory rate (35%) |
|
$534,743 |
|
$454,438 |
|
$463,831 |
Increases (reductions) in tax |
|
|
|
|
|
|
resulting from: |
|
|
|
|
|
|
State income taxes net of |
|
|
|
|
|
|
federal income tax effect |
|
44,282 |
|
36,149 |
|
43,210 |
Regulatory differences- |
|
|
|
|
|
|
utility plant items |
|
28,983 |
|
41,240 |
|
52,446 |
Amortization of investment |
|
|
|
|
|
|
tax credits |
|
(18,691) |
|
(20,596) |
|
(24,364) |
EAM capital loss |
|
(792) |
|
(86,426) |
|
- |
Flow-through/permanent |
|
|
|
|
|
|
differences |
|
(32,518) |
|
(43,037) |
|
(29,722) |
US tax on foreign income |
|
2,798 |
|
2,014 |
|
7,888 |
Other -- net |
|
479 |
|
(18,477) |
|
(15,856) |
Total income taxes from continuing |
|
$559,284 |
|
$365,305 |
|
$497,433 |
|
|
|
|
|
|
|
Effective Income Tax Rate |
|
36.6% |
|
28.1% |
|
37.5% |
The EAM capital loss is a tax benefit resulting from the sale of preferred stock and less than 1% of the common stock of Entergy Asset Management, an Entergy subsidiary. In December 2004, an Entergy subsidiary sold the stock to a third party for $29.75 million. The sale resulted in a capital loss for tax purposes of $370 million, producing a federal and state net tax benefit of $97 million that Entergy recorded in the fourth quarter of 2004. Entergy has established a contingency provision in its financial statements that management believes will sufficiently cover the risk associated with this issue.
Significant components of net deferred and noncurrent accrued tax liabilities as of December 31, 2005 and 2004 are as follows:
|
|
2005 |
|
2004 |
|
|
(In Thousands) |
||
Deferred and Noncurrent Accrued Tax Liabilities: |
|
|
|
|
Net regulatory liabilities |
|
($954,742) |
|
($978,815) |
Plant-related basis differences |
|
(5,444,178) |
|
(4,699,803) |
Power purchase agreements |
|
(2,422,967) |
|
(972,348) |
Nuclear decommissioning |
|
(390,256) |
|
(545,109) |
Other |
|
(621,179) |
|
(346,993) |
Total |
|
(9,833,322) |
|
(7,543,068) |
|
|
|
|
|
Deferred Tax Assets: |
|
|
|
|
Accumulated deferred investment |
|
|
|
|
tax credit |
|
125,521 |
|
133,979 |
Capital losses |
|
119,003 |
|
134,688 |
Net operating loss carryforwards |
|
2,788,864 |
|
1,201,006 |
Sale and leaseback |
|
238,557 |
|
227,155 |
Unbilled/deferred revenues |
|
25,455 |
|
28,741 |
Pension-related items |
|
231,154 |
|
247,662 |
Reserve for regulatory adjustments |
|
120,792 |
|
131,112 |
Customer deposits |
|
70,222 |
|
107,652 |
Nuclear decommissioning |
|
168,928 |
|
158,796 |
Other |
|
560,980 |
|
225,659 |
Valuation allowance |
|
(38,791) |
|
(43,864) |
Total |
|
4,410,685 |
|
2,552,586 |
|
|
|
|
|
Net deferred and noncurrent accrued tax liability |
|
($5,422,637) |
|
($4,990,482) |
At December 31, 2005, Entergy had $268.4 million in net realized federal capital loss carryforwards that will expire as follows: $104.9 million in 2007, $0.8 million in 2008, and $162.7 million in 2009.
At December 31, 2005, Entergy had federal net operating loss carryforwards of $6.6 billion primarily resulting from changes in tax accounting methods relating to (a) the domestic utility companies calculation of cost of goods sold and (b) Non-Utility Nuclear's 2005 mark-to-market tax accounting election, and losses due to Hurricanes Katrina and Rita. Both tax accounting method changes produce temporary book tax differences, which will reverse in the future. Approximately $4.0 billion of the net operating loss, attributable to the two tax accounting method changes, is expected to reverse within four years. The timing of the reversal depends on several variables, including the price of power and nuclear plant life extensions. If the federal net operating loss carryforwards are not utilized, they will expire in the years 2023 through 2025. Entergy expects to receive a refund of $242 million from prior tax years under the special provisions of the Gulf Opportunity Zone Act of 2005 and the Energy Policy Act of 2005 in the second quarter of 2006. The expected refund is reflected as a receivable in the "Prepayments and other" line on the balance sheet as of December 31, 2005.
At December 31, 2005, Entergy had estimated state net operating loss carryforwards of $8.4 billion, primarily resulting from Entergy Louisiana's mark-to-market tax election, the domestic utility companies' change in method of accounting for tax purposes related to cost of goods sold, and Non-Utility Nuclear's 2005 mark-to-market tax accounting election, all discussed above. If the state net operating loss carryforwards are not utilized, they will expire in the years 2008 through 2020.
The 2005 and 2004 valuation allowances are provided against UK capital loss and UK net operating loss carryforwards, and certain state net operating loss carryforwards. The UK losses can be utilized against future UK taxable income. For UK tax purposes, these carryforwards do not expire.
On October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was enacted. The Act promotes domestic production and investing activities by providing a number of tax incentives including a temporary incentive to repatriate accumulated foreign earnings, subject to certain limitations, by providing an 85% dividends received deduction for certain repatriated earnings and also providing a tax deduction of up to 9% of qualifying production activities. In 2004, Entergy repatriated $59.1 million of accumulated foreign earnings, which resulted in approximately $11.0 million of tax benefit. At December 31, 2005, Entergy had no undistributed earnings from subsidiary companies outside the United States that are being considered for repatriation. In accordance with FSP 109-1, which was issued by the FASB to address the accounting for the impacts of the Act, the allowable production tax credit will be treated as a special deduction in the period in which it is deducted rather than treat ed as a tax rate change during 2004 which is the period in which the Act was signed into law. The adoption of FSP 109-1 and FSP 109-2, also issued by the FASB to address the accounting for the repatriation provisions of the Act, did not have a material effect on Entergy's financial statements.
Income Tax Audits
Entergy is currently under audit by the IRS with respect to tax returns for tax periods subsequent to 1995 and through 2003, and is subject to audit by the IRS and other taxing authorities for subsequent tax periods. The amount and timing of any tax assessments resulting from these audits are uncertain, and could have a material effect on Entergy's financial position and results of operations. Entergy believes that the contingency provisions established in its financial statements will sufficiently cover the liabilities that are reasonably estimable associated with tax matters. Certain material audit matters as to which management believes there is a reasonable possibility of a future tax payment are discussed below.
Depreciable Property Lives
In October 2005, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi Entergy New Orleans, and System Energy concluded settlement discussions with IRS Appeals related to the 1996 - 1998 audit cycle. The most significant issue settled involved the changes in tax depreciation methods with respect to certain types of depreciable property. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans partially conceded depreciation associated with assets other than street lighting and intend to pursue the street lighting depreciation in litigation. Entergy Gulf States was not part of the settlement and did not change its accounting method for these certain assets until 1999. The total cash concession related to these deductions for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy is $56 million plus interest of $23 million. The effect of a similar settlement by Entergy Gulf States would result in a cash tax exposu re of approximately $25 million plus interest of $8 million.
Because this issue relates to the timing of when depreciation expense is deducted, the conceded amount for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, or any future conceded amounts by Entergy Gulf States will be recovered in future periods. Entergy believes that the contingency provision established in its financial statements sufficiently covers the risk associated with this item.
Mark to Market of Certain Power Contracts
In 2001, Entergy Louisiana changed its method of accounting for income tax purposes related to its wholesale electric power contracts. The most significant of these is the contract to purchase power from the Vidalia hydroelectric project. On audit of Entergy Louisiana's 2001 tax return, the IRS made an adjustment reducing the amount of the deduction associated with this method change. The adjustment had no material impact on Entergy Louisiana's earnings and required no additional cash payment of 2001 income tax. The Vidalia contract method change has resulted in estimated cumulative cash flow benefits of approximately $664 million through December 31, 2005. This benefit could reverse in the years 2006 through 2031 depending on several variables, including the price of power. The tax accounting election has had no effect on book income tax expense.
NOTE 4. LINES OF CREDIT AND SHORT-TERM BORROWINGS
Entergy Corporation has in place two separate revolving credit facilities, a five-year credit facility and a three-year credit facility. The five-year credit facility, which expires in May 2010, has a borrowing capacity of $2 billion, of which $785 million was outstanding as of December 31, 2005. The three-year facility, which expires in December 2008, has the borrowing capacity of $1.5 billion, none of which was outstanding at December 31, 2005. Entergy also has the ability to issue letters of credit against the total borrowing capacity of both credit facilities, and letters of credit totaling $239.5 million had been issued against the five-year facility at December 31, 2005. The total unused capacity for these facilities as of December 31, 2005 was approximately $2.2 billion. The commitment fee for these facilities is currently 0.13% per annum of the unused amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior debt ra tings of the domestic utility companies.
Entergy Corporation's facilities require it to maintain a consolidated debt ratio of 65% or less of its total capitalization. If Entergy fails to meet this ratio, or if Entergy or the domestic utility companies (except Entergy New Orleans) default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the facilities' maturity dates may occur.
Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi each have 364-day credit facilities available as follows:
|
|
|
|
Amount of |
|
Amount Drawn as |
|
|
|
|
|
|
|
Entergy Arkansas |
|
April 2006 |
|
$85 million (a) |
|
- |
Entergy Louisiana |
|
April 2006 |
|
$85 million (a) |
|
$40 million |
Entergy Louisiana |
|
May 2006 |
|
$15 million (b) |
|
- |
Entergy Mississippi |
|
May 2006 |
|
$25 million |
|
- |
(a) |
The combined amount borrowed by Entergy Arkansas and Entergy Louisiana under these facilities at any one time cannot exceed $85 million. Entergy Louisiana granted a security interest in its receivables to secure its $85 million facility. |
(b) |
The combined amount borrowed by Entergy Louisiana under its $15 million facility and by Entergy New Orleans under a $15 million facility that it has with the same lender cannot exceed $15 million at any one time. Because Entergy New Orleans' facility is fully drawn, no capacity is currently available on Entergy Louisiana's facility. |
The 364-day credit facilities have variable interest rates and the average commitment fee is 0.13%. The $85 million Entergy Arkansas and Entergy Louisiana credit facilities each require the respective company to maintain total shareholders' equity of at least 25% of its total assets.
After the repeal of PUHCA 1935, effective February 8, 2006, the FERC, under the Federal Power Act, and not the SEC, has jurisdiction over authorizing securities issuances by the domestic utility companies and System Energy (except securities with maturities longer than one year issued by (a) Entergy Arkansas which are subject to the jurisdiction of the APSC and (b) Entergy New Orleans which are currently subject to the jurisdiction of the bankruptcy court). Under PUHCA 2005 and the Federal Power Act, no approvals are necessary for Entergy Corporation to issue securities. Under a savings provision in PUHCA 2005, each of the domestic utility companies and System Energy may rely on the financing authority in its existing PUHCA 1935 SEC order or orders through December 31, 2007 or until the SEC authority is superceded by FERC authorization. The FERC has issued an order ("FERC Short-Term Order") approving the short-term borrowing limits of the domestic utility companies (except Entergy N ew Orleans) and System Energy through March 31, 2008. Entergy New Orleans may rely on existing SEC PUHCA 1935 orders for its short-term financing authority, subject to bankruptcy court approval. In addition to borrowings from commercial banks, the FERC Short-Term Order authorized the domestic utility companies (except Entergy New Orleans which is authorized by an SEC PUHCA 1935 order) and System Energy to continue as participants in the Entergy System money pool through February 8, 2007. The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external short-term borrowings combined may not exceed authorized limits. As of December 31, 2005, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, the aggregate outstanding borrowing from the money pool was $379.7 million, and Entergy's subsidiaries' outstanding short-term borrowing from external sources was $40 million. To the extent that the domestic utility companies and System Energy wish to rely on SEC financing orders under PUHCA 1935, there are capitalization and investment grade ratings conditions that must be satisfied in connection with security issuances, other than money pool borrowings. There is further discussion of commitments for long-term financing arrangements in Note 5 to the consolidated financial statements.
NOTE 5. LONG - TERM DEBT
Long-term debt as of December 31, 2005 and 2004 consisted of:
2005 |
2004 |
||
(In Thousands) |
|||
Mortgage Bonds: |
|||
6.125% Series due July 2005 - Entergy Arkansas |
$- |
$100,000 |
|
8.125% Series due July 2005 - Entergy New Orleans(g) |
- |
30,000 |
|
6.77% Series due August 2005 - Entergy Gulf States |
- |
98,000 |
|
4.875% Series due October 2007 - System Energy |
70,000 |
70,000 |
|
4.35% Series due April 2008 - Entergy Mississippi |
100,000 |
100,000 |
|
3.6% Series due June 2008 - Entergy Gulf States |
325,000 |
325,000 |
|
3.875% Series due August 2008 - Entergy New Orleans (g) |
- |
30,000 |
|
Libor + 0.75% Series due December 2008 - Entergy Gulf States |
350,000 |
- |
|
Libor + 0.40% Series due December 2009 - Entergy Gulf States |
225,000 |
225,000 |
|
4.5% Series due June 2010 - Entergy Arkansas |
100,000 |
- |
|
4.67% Series due June 2010 - Entergy Louisiana |
55,000 |
- |
|
5.12% Series due August 2010 - Entergy Gulf States |
100,000 |
- |
|
5.83% Series due November 2010 - Entergy Louisiana |
150,000 |
- |
|
4.65% Series due May 2011 - Entergy Mississippi |
80,000 |
80,000 |
|
4.875% Series due November 2011 - Entergy Gulf States |
200,000 |
200,000 |
|
140,000 |
140,000 |
||
5.15% Series due February 2013 - Entergy Mississippi |
100,000 |
100,000 |
|
5.25% Series due August 2013 - Entergy New Orleans (g) |
- |
70,000 |
|
5.09% Series due November 2014 - Entergy Louisiana |
115,000 |
115,000 |
|
5.6% Series due December 2014 - Entergy Gulf States |
50,000 |
50,000 |
|
5.25% Series due August 2015 - Entergy Gulf States |
200,000 |
200,000 |
|
5.70% Series due June 2015 - Entergy Gulf States |
200,000 |
- |
|
5.56% Series due September 2015 - Entergy Louisiana |
100,000 |
- |
|
6.75% Series due October 2017 - Entergy New Orleans (g) |
- |
25,000 |
|
5.4% Series due May 2018 - Entergy Arkansas |
150,000 |
150,000 |
|
4.95% Series due June 2018 - Entergy Mississippi |
95,000 |
95,000 |
|
5.0% Series due July 2018 - Entergy Arkansas |
115,000 |
115,000 |
|
5.5% Series due April 2019 - Entergy Louisiana |
100,000 |
100,000 |
|
7.0% Series due October 2023 - Entergy Arkansas |
- |
175,000 |
|
5.6% Series due September 2024 - Entergy New Orleans (g) |
- |
35,000 |
|
5.66% Series due February 2025 - Entergy Arkansas |
175,000 |
- |
|
5.65% Series due September 2029 - Entergy New Orleans (g) |
- |
40,000 |
|
6.7% Series due April 2032 - Entergy Arkansas |
100,000 |
100,000 |
|
7.6% Series due April 2032 - Entergy Louisiana |
150,000 |
150,000 |
|
6.0% Series due November 2032 - Entergy Arkansas |
100,000 |
100,000 |
|
6.0% Series due November 2032 - Entergy Mississippi |
75,000 |
75,000 |
|
7.25% Series due December 2032 - Entergy Mississippi |
100,000 |
100,000 |
|
5.9% Series due June 2033 - Entergy Arkansas |
100,000 |
100,000 |
|
6.20% Series due July 2033 - Entergy Gulf States |
240,000 |
240,000 |
|
6.25% Series due April 2034 - Entergy Mississippi |
100,000 |
100,000 |
|
6.4% Series due October 2034 - Entergy Louisiana |
70,000 |
70,000 |
|
6.38% Series due November 2034 - Entergy Arkansas |
60,000 |
60,000 |
|
6.18% Series due March 2035 - Entergy Gulf States |
85,000 |
- |
|
6.30% Series due September 2035 - Entergy Louisiana |
100,000 |
- |
|
Total mortgage bonds |
$4,575,000 |
$3,763,000 |
2005 |
2004 |
||
(In Thousands) |
|||
Governmental Bonds (a): |
|||
5.45% Series due 2010, Calcasieu Parish - Louisiana |
$22,095 |
$22,095 |
|
6.75% Series due 2012, Calcasieu Parish - Louisiana |
48,285 |
48,285 |
|
6.7% Series due 2013, Pointe Coupee Parish - Louisiana |
17,450 |
17,450 |
|
5.7% Series due 2014, Iberville Parish - Louisiana |
21,600 |
21,600 |
|
7.7% Series due 2014, West Feliciana Parish - Louisiana |
- |
94,000 |
|
5.8% Series due 2015, West Feliciana Parish - Louisiana |
28,400 |
28,400 |
|
7.0% Series due 2015, West Feliciana Parish - Louisiana |
39,000 |
39,000 |
|
7.5% Series due 2015, West Feliciana Parish - Louisiana |
- |
41,600 |
|
9.0% Series due 2015, West Feliciana Parish - Louisiana |
- |
45,000 |
|
5.8% Series due 2016, West Feliciana Parish - Louisiana |
20,000 |
20,000 |
|
6.3% Series due 2016, Pope County - Arkansas (f) |
19,500 |
19,500 |
|
5.6% Series due 2017, Jefferson County - Arkansas |
45,500 |
45,500 |
|
6.3% Series due 2018, Jefferson County - Arkansas (f) |
9,200 |
9,200 |
|
6.3% Series due 2020, Pope County - Arkansas |
120,000 |
120,000 |
|
6.25% Series due 2021, Independence County - Arkansas |
- |
45,000 |
|
7.5% Series due 2021, St. Charles Parish - Louisiana |
- |
50,000 |
|
5.0% Series due 2021, Independence County - Arkansas |
45,000 |
- |
|
5.875% Series due 2022, Mississippi Business Finance Corp. |
216,000 |
216,000 |
|
5.9% Series due 2022, Mississippi Business Finance Corp. |
102,975 |
102,975 |
|
7.0% Series due 2022, St. Charles Parish - Louisiana |
- |
24,000 |
|
7.05% Series due 2022, St. Charles Parish - Louisiana |
- |
20,000 |
|
Auction Rate due 2022, Independence County - Mississippi (f) |
30,000 |
30,000 |
|
4.6% Series due 2022, Mississippi Business Finance Corp. (f) |
16,030 |
16,030 |
|
5.95% Series due 2023, St. Charles Parish - Louisiana (f) |
25,000 |
25,000 |
|
6.2% Series due 2023, St. Charles Parish - Louisiana |
- |
33,000 |
|
6.875% Series due 2024, St. Charles Parish - Louisiana |
- |
20,400 |
|
6.375% Series due 2025, St. Charles Parish - Louisiana |
- |
16,770 |
|
6.2% Series due 2026, Claiborne County - Mississippi |
90,000 |
90,000 |
|
5.05% Series due 2028, Pope County - Arkansas (b) |
- |
47,000 |
|
6.6% Series due 2028, West Feliciana Parish - Louisiana |
40,000 |
40,000 |
|
Auction Rate due 2030, St. Charles Parish - Louisiana (f) |
60,000 |
60,000 |
|
4.9% Series due 2030, St. Charles Parish - Louisiana (e) |
- |
55,000 |
|
Total governmental bonds |
1,016,035 |
1,462,805 |
|
Other Long-Term Debt: |
|||
Note Payable to NYPA, non-interest bearing, 4.8% implicit rate |
$373,186 |
$445,605 |
|
5 year Bank Credit Facility (Entergy Corporation and Subsidiaries, Note 4) |
785,000 |
- |
|
3 year Bank Credit Facility (Entergy Corporation and Subsidiaries, Note 4) |
- |
50,000 |
|
Bank term loan, Entergy Corporation, avg rate 2.98%, due 2010 |
60,000 |
60,000 |
|
Bank term loan, Entergy Corporation, avg rate 3.08%, due 2008 |
35,000 |
35,000 |
|
6.17% Notes due March 2008, Entergy Corporation |
72,000 |
72,000 |
|
6.23% Notes due March 2008, Entergy Corporation |
15,000 |
15,000 |
|
6.13% Notes due September 2008, Entergy Corporation |
150,000 |
150,000 |
2005 |
2004 |
||
(In Thousands) |
|||
Other Long-Term Debt (continued): |
|||
7.75% Notes due December 2009, Entergy Corporation |
267,000 |
267,000 |
|
6.58% Notes due May 2010, Entergy Corporation |
75,000 |
75,000 |
|
6.9% Notes due November 2010, Entergy Corporation |
140,000 |
140,000 |
|
7.625% Notes initially due February 2011, Entergy Corporation (h) |
500,000 |
- |
|
7.06% Notes due March 2011, Entergy Corporation |
86,000 |
86,000 |
|
Long-term DOE Obligation (c) |
161,048 |
156,332 |
|
Waterford 3 Lease Obligation |
247,725 |
247,725 |
|
Grand Gulf Lease Obligation |
364,806 |
397.119 |
|
Unamortized Premium and Discount - Net |
(6,886) |
(10,277) |
|
8.75% Junior Subordinated Deferrable Interest Debentures |
- |
87,629 |
|
Other |
12,096 |
9,457 |
|
Total Long-Term Debt |
8,928,010 |
7,509,395 |
|
Less Amount Due Within One Year |
103,517 |
492,564 |
|
Long-Term Debt Excluding Amount Due Within One Year |
$8,824,493 |
$7,016,831 |
|
Fair Value of Long-Term Debt (d) |
$8,009,388 |
$6,614,211 |
(a) |
Consists of pollution control revenue bonds and environmental revenue bonds. |
(b) |
The bonds had a mandatory tender date of September 1, 2005. Entergy Arkansas purchased the bonds from the holders, pursuant to the mandatory tender provision, and has not remarketed the bonds at this time. |
(c) |
Pursuant to the Nuclear Waste Policy Act of 1982, Entergy's nuclear owner/licensee subsidiaries have contracts with the DOE for spent nuclear fuel disposal service. The contracts include a one-time fee for generation prior to April 7, 1983. Entergy Arkansas is the only Entergy company that generated electric power with nuclear fuel prior to that date and includes the one-time fee, plus accrued interest, in long-term debt. |
(d) |
The fair value excludes lease obligations and long-term DOE obligations, and includes debt due within one year. It is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. |
(e) |
The bonds had a mandatory tender date of June 1, 2005. Entergy Louisiana purchased the bonds from the holders, pursuant to the mandatory tender provision, and has not remarketed the bonds at this time. |
(f) |
The bonds are secured by a series of collateral first mortgage bonds. |
(g) |
Because of the Entergy New Orleans bankruptcy filing, Entergy deconsolidated Entergy New Orleans and reports its financial position and results under the equity method of accounting retroactive to January 1, 2005. |
(h) |
In December 2005, Entergy Corporation sold 10 million equity units with a stated amount of $50 each. An equity unit consists of (1) a note, initially due February 2011 and initially bearing interest at an annual rate of 5.75%, and (2) a purchase contract that obligates the holder of the equity unit to purchase for $50 between 0.5705 and 0.7074 shares of Entergy Corporation common stock on or before February 17, 2009. Entergy will pay the holders quarterly contract adjustment payments of 1.875% per year on the stated amount of $50 per equity unit. Under the terms of the purchase contracts, Entergy Corporation will issue between 5,705,000 and 7,074,000 shares of common stock in the settlement of the purchase contracts (subject to adjustment under certain circumstances). |
The annual long-term debt maturities (excluding lease obligations) for debt outstanding as of December 31, 2005, for the next five years are as follows:
Amount |
|
(In Thousands) |
|
|
|
2006 |
$80,528 |
2007 |
$149,539 |
2008 |
$1,066,625 |
2009 |
$512,584 |
2010 |
$923,667 |
In November 2000, Entergy's Non-Utility Nuclear business purchased the FitzPatrick and Indian Point 3 power plants in a seller-financed transaction. Entergy issued notes to NYPA with seven annual installments of approximately $108 million commencing one year from the date of the closing, and eight annual installments of $20 million commencing eight years from the date of the closing. These notes do not have a stated interest rate, but have an implicit interest rate of 4.8%. In accordance with the purchase agreement with NYPA, the purchase of Indian Point 2 in 2001 resulted in Entergy's Non-Utility Nuclear business becoming liable to NYPA for an additional $10 million per year for 10 years, beginning in September 2003. This liability was recorded upon the purchase of Indian Point 2 in September 2001, and is included in the note payable to NYPA balance above. In July 2003, a payment of $102 million was made prior to maturity on the note payable to NYPA. Under a provision in a letter of credit supporting these notes, if certain of the domestic utility companies or System Energy were to default on other indebtedness, Entergy could be required to post collateral to support the letter of credit.
Non-Utility Nuclear's purchase of the Fitzpatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. Under the value sharing agreements, to the extent that the average annual price of the energy sales from each of the two plants exceeds specified strike prices, the Non-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to NYPA. These payments, if required, will be recorded as adjustments to the purchase price of the plants. The annual energy sales subject to the value sharing agreements are limited to the lesser of actual generation or generation assuming an 85% capacity factor based on the plants' capacities at the time of the purchase. The value sharing agreements are effective through 2014. The strike prices for Fitzpatrick range from $37.51/MWh in 2005 increasing by approximately 3.5% each year to $51.30/MWh in 2014, and the strike prices for Indian Point 3 range from $42.26/MWh in 2005 increasing by approximately 3.5% eac h year to $57.77/MWh in 2014.
Covenants in the Entergy Corporation notes require it to maintain a consolidated debt ratio of 65% or less of its total capitalization. If Entergy's debt ratio exceeds this limit, or if Entergy or certain of the domestic utility companies default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the notes' maturity dates may occur.
The long-term securities issuances of Entergy Mississippi and System Energy are limited to amounts authorized by the SEC under PUHCA 1935. After the repeal of PUHCA 1935 on February 8, 2006, the FERC, under the Federal Power Act, has jurisdiction over the securities issuances of these companies. Under a savings provision in the PUHCA 1935 repeal legislation, these companies can rely on the authority of their existing SEC orders until each obtains new orders from the FERC. The SEC PUHCA 1935 financing order of Entergy Mississippi limits securities issuances unless certain capitalization and investment grade ratings conditions are met. Entergy Gulf States and Entergy Louisiana, LLC have received FERC long-term financing ordersthat do not have such conditions. The long-term securities issuances of Entergy Arkansas are limited to amounts authorized by the APSC.
Capital Funds Agreement
Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to:
NOTE 6. PREFERRED STOCK
The number of shares authorized and outstanding and dollar value of preferred stock and minority interest for Entergy Corporation subsidiaries as of December 31, 2005 and 2004 are presented below. Only the Entergy Gulf States series "with sinking fund" contain mandatory redemption requirements. All other series of the U.S. Utility are redeemable at Entergy's option.
Shares |
Shares |
|||||||||||
2005 |
2004 |
2005 |
2004 |
2005 |
2004 |
|||||||
Entergy Corporation |
(Dollars in Thousands) |
|||||||||||
U.S. Utility: |
||||||||||||
Preferred Stock without sinking fund: |
||||||||||||
Entergy Arkansas, 4.32%-7.88% Series |
1,613,500 |
1,613,500 |
1,613,500 |
1,613,500 |
$116,350 |
$116,350 |
||||||
Entergy Gulf States, 4.20%-7.56% Series |
473,268 |
473,268 |
473,268 |
473,268 |
47,327 |
47,327 |
||||||
Entergy Louisiana Holdings, 4.16%-8.00% |
2,115,000 |
2,115,000 |
2,115,000 |
2,115,000 |
100,500 |
100,500 |
||||||
Entergy Louisiana, LLC 6.95% Series |
1,000,000 |
- |
1,000,000 |
- |
100,000 |
- |
||||||
Entergy Mississippi, 4.36%-6.25% Series |
1,403,807 |
503,807 |
1,403,807 |
503,807 |
50,381 |
50,381 |
||||||
Entergy New Orleans, 4.36%-5.56% Series (a) |
- |
197,798 |
- |
197,798 |
- |
19,780 |
||||||
Total U. S. Utility Preferred Stock without sinking fund |
|
|
|
|
|
|
||||||
Energy Commodity Services: |
||||||||||||
Preferred Stock without sinking fund: |
||||||||||||
Entergy Asset Management, 11.50% rate |
1,000,000 |
1,000,000 |
297,376 |
297,376 |
29,738 |
29,738 |
||||||
Other |
- |
- |
- |
- |
1,678 |
1,280 |
||||||
Total Preferred Stock without sinking fund |
7,605,575 |
5,903,373 |
6,902,951 |
5,200,749 |
$445,974 |
$365,356 |
||||||
U.S. Utility: |
||||||||||||
Preferred Stock with sinking fund: |
||||||||||||
Entergy Gulf States, Adjustable |
||||||||||||
Rate 7.0% (b) |
139,500 |
174,000 |
139,500 |
174,000 |
$13,950 |
$17,400 |
||||||
Total Preferred Stock with sinking fund |
139,500 |
174,000 |
139,500 |
174,000 |
$13,950 |
$17,400 |
||||||
Fair Value of Preferred Stock with |
||||||||||||
sinking fund (c) |
$13,950 |
$15,286 |
(a) |
Because of the Entergy New Orleans bankruptcy filing, Entergy deconsolidated Entergy New Orleans and reports its financial position and results under the equity method of accounting retroactive to January 1, 2005. |
(b) |
Represents weighted-average annualized rate for 2005 and 2004. |
(c) |
Fair values were determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. There is additional disclosure of fair value of financial instruments in Note 14 to the consolidated financial statements. |
All outstanding preferred stock is cumulative.
Entergy Gulf States' preferred stock with sinking fund retirements were 34,500 shares in 2005, 2004, and 2003. Entergy Gulf States has annual sinking fund requirements of $3.45 million through 2008 for its preferred stock outstanding.
In June 2005, Entergy Mississippi issued 1,200,000 shares of $25 par value 6.25% Series Preferred Stock, all of which are outstanding as of December 31, 2005. The dividends are cumulative and payable quarterly beginning November 1, 2005. The preferred stock is redeemable on or after July 1, 2010, at Entergy Mississippi's option, at the call price of $25 per share. The proceeds from this issuance were used in the third quarter of 2005 to redeem all $20 million of Entergy Mississippi's $100 par value 8.36% Series Preferred Stock and all $10 million of Entergy Mississippi's $100 par value 7.44% Series Preferred Stock.
In December 2005, Entergy Louisiana, LLC issued 1,000,000 shares of $100 par value 6.95% Series Preferred Stock, all of which are outstanding as of December 31, 2005. The dividends are cumulative and payable quarterly beginning March 15, 2006. The preferred stock is redeemable on or after December 31, 2010, at Entergy Louisiana's option, at the call price of $100 per share. The proceeds from the issuance will be used to repay short-term borrowings.
In 2004, Entergy realized a pre-tax gain of $0.9 million upon the sale to a third party of preferred shares, and less than 1% of the common shares, of Entergy Asset Management, an Entergy subsidiary. See Note 3 to the consolidated financial statements for a discussion of the tax benefit realized on the sale. Entergy Asset Management's stockholders' agreement provides that at any time during the 180-day period prior to December 31, 2007 or each subsequent December 31 thereafter, either Entergy Asset Management or the preferred shareholders may request that the preferred dividend rate be reset. If Entergy Asset Management and the preferred shareholders are unable to agree on a dividend reset rate, a preferred shareholder can request that its shares be sold to a third party. If Entergy Asset Management is unable to sell the preferred shares within 75 days, the preferred shareholder has the right to take control of the Entergy Asset Management board of directors for the purpose of liqu idating the assets of Entergy Asset Management in order to repay the preferred shares and any accrued dividends.
NOTE 7. COMMON EQUITY
Common Stock
Treasury Stock
Treasury stock activity for Entergy for 2005 and 2004 is as follows:
2005 |
2004 |
|||||||
Treasury Shares |
|
Treasury Shares |
|
|||||
(In Thousands) |
(In Thousands) |
|||||||
Beginning Balance, January 1 |
31,345,028 |
$1,432,019 |
19,276,445 |
$561,152 |
||||
Repurchases |
12,280,500 |
878,188 |
16,631,800 |
1,017,996 |
||||
Issuances: |
||||||||
Employee Stock-Based |
|
|
|
|
||||
Directors' Plan |
(15,920) |
(359) |
(7,320) |
(252) |
||||
Ending Balance, December 31 |
40,644,602 |
$2,161,960 |
31,345,028 |
$1,432,019 |
Entergy Corporation reissues treasury shares to meet the requirements of the Stock Plan for Outside Directors (Directors' Plan), the Equity Ownership Plan of Entergy Corporation and Subsidiaries (Equity Ownership Plan), the Equity Awards Plan of Entergy Corporation and Subsidiaries, and certain other stock benefit plans. The Directors' Plan awards to non-employee directors a portion of their compensation in the form of a fixed number of shares of Entergy Corporation common stock.
Equity Compensation Plan Information
Entergy grants stock options, equity awards, and incentive awards to key employees of the Entergy subsidiaries under the Equity Ownership Plan which is a shareholder-approved stock-based compensation plan.
Stock Options
Stock options are granted at exercise prices not less than market value on the date of grant. The majority of options granted in 2005, 2004, and 2003 will become exercisable in equal amounts on each of the first three anniversaries of the date of grant. Unless they are forfeited previously under the terms of the grant, options expire ten years after the date of the grant if they are not exercised. Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects, for 2005 is $7.8 million. There was no effect on net income in 2004 or 2003.
Entergy determines the fair value of the stock option grants made in 2005, 2004, and 2003by considering factors such as lack of marketability, stock retention requirements, and regulatory restrictions on exercisability. The fair value valuations comply with SFAS 123R, "Share-Based Payment," which was issued in December 2004 and is effective in the first quarter 2006. The stock option weighted-average assumptions used in determining the fair values were as follows:
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Stock price volatility |
18.8% |
|
23.1% |
|
26.3% |
Expected term in years |
3 |
|
6.3 |
|
6.2 |
Risk-free interest rate |
3.6% |
|
3.2% |
|
3.3% |
Dividend yield |
3.1% |
|
3.3% |
|
3.3% |
Dividend payment |
$2.16 |
|
$1.80 |
|
$1.40 |
Stock option transactions are summarized as follows:
|
2005 |
|
2004 |
|
2003 |
|||
|
Number |
Average |
|
Number |
Average |
|
Number |
Average |
|
|
|
|
|
|
|
|
|
Beginning-of-year balance |
12,310,077 |
$41.88 |
|
15,429,383 |
$38.64 |
|
19,943,114 |
$35.85 |
|
|
|
|
|
|
|
|
|
Options granted |
1,835,218 |
$69.37 |
|
1,898,098 |
$58.63 |
|
2,936,236 |
$44.98 |
Options exercised |
(3,135,396) |
$40.11 |
|
(4,541,053) |
$38.07 |
|
(6,927,000) |
$33.12 |
Options forfeited/expired |
(154,440) |
$59.16 |
|
(476,351) |
$39.94 |
|
(522,967) |
$40.98 |
|
|
|
|
|
|
|
|
|
End-of-year balance |
10,855,459 |
$46.80 |
|
12,310,077 |
$41.88 |
|
15,429,383 |
$38.64 |
|
|
|
|
|
|
|
|
|
Options exercisable at year-end |
7,397,622 |
$40.21 |
|
7,162,884 |
$37.25 |
|
6,153,043 |
$34.82 |
|
|
|
|
|
|
|
|
|
Weighted-average fair value of |
$8.17 |
|
|
$7.76 |
|
|
$6.86 |
|
The following table summarizes information about stock options outstanding as of December 31, 2005:
|
|
Options Outstanding |
|
Options Exercisable |
||||||
Range of |
|
As of |
|
Weighted-Avg. |
|
Weighted- |
|
Number |
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
$23 - $33.99 |
|
1,274,410 |
|
4.1 |
|
$25.98 |
|
1,274,410 |
|
$25.98 |
$34 - $44.99 |
|
5,940,768 |
|
6.1 |
|
$41.12 |
|
5,260,842 |
|
$40.69 |
$45 - $55.99 |
|
211,394 |
|
4.6 |
|
$49.39 |
|
207,360 |
|
$49.43 |
$56 - $66.99 |
|
1,688,091 |
|
8.1 |
|
$58.63 |
|
532,714 |
|
$58.69 |
$67 - $78.99 |
|
1,740,796 |
|
8.9 |
|
$69.64 |
|
122,296 |
|
$71.92 |
$23 - $78.99 |
|
10,855,459 |
|
6.6 |
|
$46.80 |
|
7,397,622 |
|
$40.21 |
|
|
|
|
|
|
|
|
|
|
|
Equity Awards and Incentive Awards
Entergy grants most of the equity awards and incentive awards earned under its stock benefit plans in the form of performance units, which are equal to the cash value of shares of Entergy Corporation common stock at the time of payment. In addition to the potential for equivalent share appreciation or depreciation, performance units will earn the cash equivalent of the dividends paid during the performance period applicable to each plan. The costs of equity and incentive awards, given either as company stock or performance units, are charged to income over the period of the grant or restricted period, as appropriate. In 2005, 2004, and 2003, $36 million, $47 million, and $45 million, respectively, was charged to compensation expense.
Retained Earnings and Dividend Restrictions
Provisions within the articles of incorporation or pertinent indentures and various other agreements relating to the long-term debt and preferred stock of certain of Entergy Corporation's subsidiaries restrict the payment of cash dividends or other distributions on their common and preferred stock. As of December 31, 2005, Entergy Arkansas and Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of $396.4 million and $68.5 million, respectively. Entergy Corporation received dividend payments from subsidiaries totaling $424 million in 2005, $825 million in 2004, and $425 million in 2003.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Entergy is involved in a number of legal, tax, and regulatory proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of its business. While management is unable to predict the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy's results of operations, cash flows, or financial condition.
Entergy New Orleans Bankruptcy
See Note 16 to the consolidated financial statements for information on the Entergy New Orleans bankruptcy proceeding.
Vidalia Purchased Power Agreement
Entergy Louisiana has an agreement extending through the year 2031 to purchase energy generated by a hydroelectric facility known as the Vidalia project. Entergy Louisiana made payments under the contract of approximately $115.1 million in 2005, $147.7 million in 2004, and $112.6 million in 2003. If the maximum percentage (94%) of the energy is made available to Entergy Louisiana, current production projections would require estimated payments of approximately $130.4 million in 2006, and a total of $3.4 billion for the years 2006 through 2031. Entergy Louisiana currently recovers the costs of the purchased energy through its fuel adjustment clause. In an LPSC-approved settlement related to tax benefits from the tax treatment of the Vidalia contract, Entergy Louisiana agreed to credit rates by $11 million each year for up to ten years, beginning in October 2002. The provisions of the settlement also provide that the LPSC shall not recognize or use Entergy Louisiana's use of the cash benefits from the tax treatment in setting any of Entergy Louisiana's rates. Therefore, to the extent Entergy Louisiana's use of the proceeds would ordinarily have reduced its rate base, no change in rate base shall be reflected for ratemaking purposes.
Nuclear Insurance
Third Party Liability Insurance
The Price-Anderson Act provides insurance for the public in the event of a nuclear power plant accident. The costs of this insurance are borne by the nuclear power industry. Originally passed by Congress in 1957 and most recently amended in 2005, the Price-Anderson Act requires nuclear power plants to show evidence of financial protection in the event of a nuclear accident. This protection must consist of two levels:
The primary level is private insurance underwritten by American Nuclear Insurers and provides liability insurance coverage of $300 million. If this amount is not sufficient to cover claims arising from the accident, the second level, Secondary Financial Protection, applies. An industry-wide aggregate limitation of $300 million exists for domestically-sponsored terrorist acts. There is no aggregate limitation for foreign-sponsored terrorist acts.
Within the Secondary Financial Protection level, each nuclear plant must pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary level, up to a maximum of $100.6 million per reactor per incident. This consists of a $95.8 million maximum retrospective premium plus a five percent surcharge that may be applied, if needed, at a rate that is presently set at $15 million per year per nuclear power reactor. There are no domestically- or foreign-sponsored terrorism limitations.
Currently, 104 nuclear reactors are participating in the Secondary Financial Protection program - 103 operating reactors and one under construction. The product of the maximum retrospective premium assessment to the nuclear power industry and the number of nuclear power reactors provides over $10 billion in insurance coverage to compensate the public in the event of a nuclear power reactor accident.
Entergy owns and operates ten of the nuclear power reactors, and owns the shutdown Indian Point 1 reactor (10% of Grand Gulf is owned by a non-affiliated company which would share on a pro-rata basis in any retrospective premium assessment under the Price-Anderson Act).
An additional but temporary contingent liability exists for all nuclear power reactor owners because of a previous Nuclear Worker Tort (long-term bodily injury caused by exposure to nuclear radiation while employed at a nuclear power plant) insurance program that was in place from 1988 to 1998. The maximum premium assessment exposure to each reactor is $3 million and will only be applied if such claims exceed the program's accumulated reserve funds. This contingent premium assessment feature will expire with the Nuclear Worker Tort program's expiration, which is scheduled for 2008.
Property Insurance
Entergy's nuclear owner/licensee subsidiaries are members of certain mutual insurance companies that provide property damage coverage, including decontamination and premature decommissioning expense, to the members' nuclear generating plants. These programs are underwritten by Nuclear Electric Insurance Limited (NEIL). As of December 31, 2005, Entergy was insured against such losses per the following structures:
U.S. Utility Plants (ANO 1 and 2, Grand Gulf, River Bend, and Waterford 3)
Note: ANO 1 and 2 share in the Primary Layer with one policy in common.
Non-Utility Nuclear Plants (Indian Point 2 and 3, FitzPatrick, Pilgrim, and Vermont Yankee)
Note: Indian Point 2 and 3 share in the Primary Layer with one policy in common.
In addition, the Non-Utility Nuclear plants are also covered under NEIL's Accidental Outage Coverage program. This coverage provides certain fixed indemnities in the event of an unplanned outage that results from a covered NEIL property damage loss, subject to a deductible. The following summarizes this coverage as of December 31, 2005:
Indian Point 2 and 3
FitzPatrick and Pilgrim (each plant has an individual policy with the noted parameters)
Vermont Yankee
Entergy's U.S. Utility nuclear plants have significantly less or no accidental outage coverage. Under the property damage and accidental outage insurance programs, Entergy nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of December 31, 2005, the maximum amounts of such possible assessments per occurrence were $52.5 million for the U.S. Utility plants and $66.7 million for the Non-Utility Nuclear plants.
Entergy maintains property insurance for its nuclear units in excess of the NRC's minimum requirement of $1.06 billion per site for nuclear power plant licensees. NRC regulations provide that the proceeds of this insurance must be used, first, to render the reactor safe and stable, and second, to complete decontamination operations. Only after proceeds are dedicated for such use and regulatory approval is secured would any remaining proceeds be made available for the benefit of plant owners or their creditors.
In the event that one or more acts of domestically-sponsored terrorism causes property damage under one or more or all nuclear insurance policies issued by NEIL (including, but not limited to, those described above) within 12 months from the date the first property damage occurs, the maximum recovery under all such nuclear insurance policies shall be an aggregate of $3.24 billion plus the additional amounts recovered for such losses from reinsurance, indemnity, and any other sources applicable to such losses. There is no aggregate limit involving one or more acts of foreign-sponsored terrorism.
Non-Nuclear Property Insurance
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). There is an aggregation limit of $1 billion for all parties insured by OIL for any one occurrence. Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Gulf States, and Entergy New Orleans.
In addition to the OIL program, Entergy has purchased additional coverage for some of its non-regulated, non-generation assets through Zurich American. This policy serves to buy-down the $20 million deductible and is placed on a scheduled location basis. The applicable deductibles are $100,000 or $250,000 as per the schedule provided to underwriters.
Nuclear Decommissioning and Other Retirement Costs
SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets. For Entergy, these asset retirement obligations consist of its liability for decommissioning its nuclear power plants.
These liabilities are recorded at their fair values (which are the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets will be depreciated over the useful lives of the assets.
In accordance with ratemaking treatment and as required by SFAS 71, the depreciation provisions for the domestic utility companies and System Energy include a component for removal costs that are not asset retirement obligations under SFAS 143. In accordance with regulatory accounting principles, Entergy has recorded a regulatory asset for certain of its domestic utility companies and System Energy of $162.9 million as of December 31, 2005 and $86.9 million as of December 31, 2004 to reflect an estimate of incurred but uncollected removal costs previously recorded as a component of accumulated depreciation. The decommissioning and retirement cost liability for certain of the domestic utility companies and System Energy includes a regulatory liability of $22.8 million as of December 31, 2005 and $34.6 million as of December 31, 2004 representing an estimate of collected but not yet incurred removal costs.
The cumulative decommissioning and retirement cost liabilities and expenses recorded in 2005 by Entergy were as follows:
|
|
|
|
|
|
|
Change in |
|
|
|
|
(In Millions) |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Utility |
$1,328.0 |
|
$88.2 |
|
$27.8 |
|
($282.2) |
|
- |
|
$1,161.8 |
Non-Utility |
|
|
|
|
|
|
|
|
|
|
|
In addition, an insignificant amount of removal costs associated with non-nuclear power plants are also included in the decommissioning line item on the balance sheet. Entergy periodically reviews and updates estimated decommissioning costs. The actual decommissioning costs may vary from the estimates because of regulatory requirements, changes in technology, and increased costs of labor, materials, and equipment. During 2004 and 2005, Entergy updated decommissioning cost studies for ANO 1 and 2, River Bend, Grand Gulf, Waterford, and a non-utility plant.
In the first quarter of 2004, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for ANO 1 and 2 as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of the plants will begin. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.
In the third quarter of 2004, Entergy Gulf States recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for River Bend that reflected an expected life extension for the plant. The revised estimate resulted in a $166.4 million reduction in decommissioning liability, along with a $31.3 million reduction in utility plant, a $49.6 million reduction in non-utility property, a $40.1 million reduction in the related regulatory asset, and a regulatory liability of $17.7 million. For the portion of River Bend not subject to cost-based ratemaking, the revised estimate resulted in the elimination of the asset retirement cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous other income of $27.7 million ($17 million net-of-tax).
In the third quarter of 2004, Entergy's Non-Utility Nuclear business recorded a reduction of $20.3 million in decommissioning liability to reflect changes in assumptions regarding the timing of when decommissioning of a plant will begin. Entergy considered the assumptions as part of recent studies evaluating the economic effect of the plant in its region. The revised estimate resulted in miscellaneous income of $20.3 million ($11.9 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated asset retirement cost recorded at the time of adoption of SFAS 143.
In the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded a reduction of $26.0 million in its decommissioning cost liability in conjunction with a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptions regarding the timing of the decommissioning of a plant. The revised estimate resulted in miscellaneous income of $26.0 million ($15.8 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated assets.
In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.
In the third quarter of 2005, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability for ANO 2 in accordance with the receipt of approval by the NRC of Entergy Arkansas' application for a life extension for the unit. The revised estimate resulted in an $87.2 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.
In the third quarter of 2005, System Energy recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Grand Gulf. The revised estimate resulted in a $41.4 million reduction in the decommissioning cost liability for Grand Gulf, along with a $39.7 million reduction in utility plant and a $1.7 million reduction in the related regulatory asset.
In December 2005, Entergy implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation primarily represent Entergy's obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. For the U.S. Utility business, the implementation of FIN 47 for the rate-regulated business of the domestic utility companies was recorded in regulatory assets, with no resulting effect on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of ser vice or in rate base, from current and future customers. As a result of this treatment, FIN 47 was earnings neutral to the rate-regulated business of the domestic utility companies. Upon implementation of FIN 47 in December 2005, assets increased by $28.8 million and liabilities increased by $30.3 million for the U.S. Utility segment as a result of recording the asset retirement obligations at their fair values of $30.3 million as determined under FIN 47, increasing utility plant by $2.7 million, increasing accumulated depreciation by $1.8 million, and recording the related regulatory assets of $27.9 million. The implementation of FIN 47 for portions of Entergy Gulf States not subject to cost-based ratemaking decreased earnings by $0.9 million net-of-tax. If Entergy had applied FIN 47 during prior periods, the following impacts would have resulted:
December 31, |
December 31, |
|||
Asset retirement obligations actually recorded |
$2,066,277 |
$2,215,490 |
||
Pro forma effect of FIN 47 |
$29,399 |
$27,708 |
||
Asset retirement obligations - pro forma |
$2,095,676 |
$2,243,198 |
The impact on net income for each of the years ended December 31, 2004 and 2003 would have been immaterial.
For the Indian Point 3 and FitzPatrick plants purchased in 2000, NYPA retained the decommissioning trusts and the decommissioning liability. NYPA and Entergy executed decommissioning agreements, which specify their decommissioning obligations. NYPA has the right to require Entergy to assume the decommissioning liability provided that it assigns the corresponding decommissioning trust, up to a specified level, to Entergy. If the decommissioning liability is retained by NYPA, Entergy will perform the decommissioning of the plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trusts. Entergy believes that the amounts available to it under either scenario are sufficient to cover the future decommissioning costs without any additional contributions to the trusts.
Entergy maintains decommissioning trust funds that are committed to meeting the costs of decommissioning the nuclear power plants. The fair values of the decommissioning trust funds and asset retirement obligation-related regulatory assets of Entergy as of December 31, 2005 are as follows:
|
Decommissioning |
|
Regulatory |
|
(In Millions) |
||
|
|
|
|
U.S. Utility |
$1,136.0 |
|
$271.7 |
Non-Utility Nuclear |
$1,470.8 |
|
- |
The Energy Policy Act of 1992 contains a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning (D&D) of the DOE's past uranium enrichment operations. Annual assessments in 2005 were $4.5 million for Entergy Arkansas, $1.1 million for Entergy Gulf States, $1.7 million for Entergy Louisiana, and $1.9 million for System Energy. The Energy Policy Act calls for cessation of annual D&D assessments not later than October 24, 2007. At December 31, 2005, one year of assessments was remaining. D&D fees are included in other current liabilities and other non-current liabilities and, as of December 31, 2005, recorded liabilities were $4.5 million for Entergy Arkansas, $1.1 million for Entergy Gulf States, $1.7 million for Entergy Louisiana, and $1.7 million for System Energy. Regulatory assets in the financial statements offset these liabilities, with the exception of Entergy Gulf States' 30% non-regulated portion. These assessme nts are recovered through rates in the same manner as fuel costs.
CashPoint Bankruptcy
In 2003 the domestic utility companies entered an agreement with CashPoint Network Services (CashPoint) under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The payment agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use payment agents.
On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through payment agents. The domestic utility companies then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another company to manage all of their payment agents. The domestic utility companies filed proofs of claim in the CashPoint bankruptcy proceeding in September 2004. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to the domestic utility companies that may not be repaid, it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy does not believe is likely, the current estimate of maximum exposure to loss is approximately $25 million.
Harrison County Plant Fire
On May 13, 2005, an explosion and fire damaged the non-nuclear wholesale assets business' Harrison County power plant. A catastrophic failure and subsequent natural gas escape from a nearby 36-inch interstate pipeline owned and operated by a third party is believed to have caused the damage. Current estimates are that the cost to clean-up the site and reconstruct the damaged portions of the plant will be approximately $52 million and take until the second quarter 2006 to be completed. The plant's property insurer has acknowledged coverage, subject to a $200 thousand deductible. Entergy owns approximately 61% of this facility. Entergy does not expect the damage caused to the Harrison County plant to have a material effect on its financial position or results of operations.
Employment Litigation
Entergy Corporation and certain subsidiaries are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, and/or other protected characteristics. Entergy Corporation and these subsidiaries are vigorously defending these suits and deny any liability to the plaintiffs. Nevertheless, no assurance can be given as to the outcome of these cases.
NOTE 9. LEASES
General
As of December 31, 2005, Entergy had capital leases and non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities (excluding nuclear fuel leases and the Grand Gulf and Waterford 3 sale and leaseback transactions) with minimum lease payments as follows:
|
|
Operating |
|
Capital |
|
|
(In Thousands) |
||
|
|
|
|
|
2006 |
|
$94,533 |
|
$5,747 |
2007 |
|
77,026 |
|
3,495 |
2008 |
|
63,081 |
|
1,307 |
2009 |
|
51,692 |
|
237 |
2010 |
|
36,695 |
|
237 |
Years thereafter |
|
196,312 |
|
2,331 |
Minimum lease payments |
|
519,339 |
|
13,354 |
Less: Amount representing interest |
|
- |
|
3,403 |
Present value of net minimum lease payments |
|
$519,339 |
|
$9,951 |
Total rental expenses for all leases (excluding nuclear fuel leases and the Grand Gulf and Waterford 3 sale and leaseback transactions) amounted to $71.2 million in 2005, $81.3 million in 2004, and $84.3 million in 2003.
As of December 31, 2005, arrangements to lease nuclear fuel existed in an aggregate amount up to $150 million for Entergy Arkansas, $105 million for Entergy Gulf States, $80 million for Entergy Louisiana, and $110 million for System Energy. As of December 31, 2005, the unrecovered cost base of nuclear fuel leases amounted to approximately $92.2 million for Entergy Arkansas, $55.2 million for Entergy Gulf States, $58.5 million for Entergy Louisiana, and $87.5 million for System Energy. The lessors finance the acquisition and ownership of nuclear fuel through loans made under revolving credit agreements, the issuance of commercial paper, and the issuance of intermediate-term notes. The credit agreements for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy each have a termination date of October 30, 2006. The termination dates may be extended from time to time with the consent of the lenders. The intermediate-term notes issued pursuant to these fuel lease a rrangements have varying maturities through February 15, 2009. It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. However, if such additional financing cannot be arranged, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations in accordance with the fuel lease.
Lease payments are based on nuclear fuel use. The total nuclear fuel lease payments (principal and interest) as well as the separate interest component charged to operations by the domestic utility companies and System Energy were $135.8 million (including interest of $12.9 million) in 2005, $146.6 million (including interest of $12.8 million) in 2004, and $142.0 million (including interest of $11.8 million) in 2003.
Sale and Leaseback Transactions
Waterford 3 Lease Obligations
In 1989, Entergy Louisiana sold and leased back 9.3% of its interest in Waterford 3 for the aggregate sum of $353.6 million. The lease has an approximate term of 28 years. The lessors financed the sale-leaseback through the issuance of Waterford 3 Secured Lease Obligation Bonds. The lease payments made by Entergy Louisiana are sufficient to service the debt.
In 1994, Entergy Louisiana did not exercise its option to repurchase the 9.3% interest in Waterford 3. As a result, Entergy Louisiana issued $208.2 million of non-interest bearing first mortgage bonds as collateral for the equity portion of certain amounts payable under the lease.
In 1997, the lessors refinanced the outstanding bonds used to finance the purchase of Waterford 3 at lower interest rates, which reduced the annual lease payments.
Upon the occurrence of certain events, Entergy Louisiana may be obligated to assume the outstanding bonds used to finance the purchase of the unit and to pay an amount sufficient to withdraw from the lease transaction. Such events include lease events of default, events of loss, deemed loss events, or certain adverse "Financial Events." "Financial Events" include, among other things, failure by Entergy Louisiana, following the expiration of any applicable grace or cure period, to maintain (i) total equity capital (including preferred stock) at least equal to 30% of adjusted capitalization, or (ii) a fixed charge coverage ratio of at least 1.50 computed on a rolling 12 month basis.
As of December 31, 2005, Entergy Louisiana's total equity capital (including preferred stock) was 49.51% of adjusted capitalization and its fixed charge coverage ratio for 2005 was 3.69.
As of December 31, 2005 Entergy Louisiana had future minimum lease payments (reflecting an overall implicit rate of 7.45%) in connection with the Waterford 3 sale and leaseback transactions, which are recorded as long-term debt, as follows:
Amount |
||
(In Thousands) |
||
2006 |
$18,261 |
|
2007 |
18,754 |
|
2008 |
22,606 |
|
2009 |
32,452 |
|
2010 |
35,138 |
|
Years thereafter |
298,924 |
|
Total |
426,135 |
|
Less: Amount representing interest |
178,410 |
|
Present value of net minimum lease payments |
$247,725 |
Grand Gulf Lease Obligations
In December 1988, System Energy sold 11.5% of its undivided ownership interest in Grand Gulf for the aggregate sum of $500 million. Subsequently, System Energy leased back its interest in the unit for a term of 26-1/2 years. System Energy has the option of terminating the lease and repurchasing the 11.5% interest in the unit at certain intervals during the lease. Furthermore, at the end of the lease term, System Energy has the option of renewing the lease or repurchasing the 11.5% interest in Grand Gulf.
In May 2004, System Energy caused the Grand Gulf lessors to refinance the outstanding bonds that they had issued to finance the purchase of their undivided interest in Grand Gulf. The refinancing is at a lower interest rate, and System Energy's lease payments have been reduced to reflect the lower interest costs.
System Energy is required to report the sale-leaseback as a financing transaction in its financial statements. For financial reporting purposes, System Energy expenses the interest portion of the lease obligation and the plant depreciation. However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes. Consistent with a recommendation contained in a FERC audit report, System Energy recorded as a net regulatory asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and is recording this difference as a regulatory asset or liability on an ongoing basis, resulting in a zero net balance at the end of the lease term. The amount of this net regulatory asset was $63.1 million and $73.7 million as of December 31, 2005 and 2004, respectively.
As of December 31, 2005 System Energy had future minimum lease payments (reflecting an implicit rate of 5.02%), which are recorded as long-term debt as follows:
Amount |
||
(In Thousands) |
||
2006 |
$46,019 |
|
2007 |
46,552 |
|
2008 |
47,128 |
|
2009 |
47,760 |
|
2010 |
48,569 |
|
Years thereafter |
253,833 |
|
Total |
489,861 |
|
Less: Amount representing interest |
125,055 |
|
Present value of net minimum lease payments |
$364,806 |
NOTE 10. RETIREMENT, OTHER POSTRETIREMENT BENEFITS, AND DEFINED CONTRIBUTION PLANS
Qualified Pension Plans
Entergy has seven qualified pension plans covering substantially all of its employees: "Entergy Corporation Retirement Plan for Non-Bargaining Employees," "Entergy Corporation Retirement Plan for Bargaining Employees," "Entergy Corporation Retirement Plan II for Non-Bargaining Employees," "Entergy Corporation Retirement Plan II for Bargaining Employees," "Entergy Corporation Retirement Plan III," "Entergy Corporation Retirement Plan IV for Non-Bargaining Employees," and "Entergy Corporation Retirement Plan IV for Bargaining Employees." Except for the Entergy Corporation Retirement Plan III, the pension plans are noncontributory and provide pension benefits that are based on employees' credited service and compensation during the final years before retirement. The Entergy Corporation Retirement Plan III includes a mandatory employee contribution of 3% of earnings during the first 10 years of plan participation, and allows voluntary contributions from 1% to 10% of earnings for a li mited group of employees. Entergy Corporation and its subsidiaries fund pension costs in accordance with contribution guidelines established by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The assets of the plans include common and preferred stocks, fixed-income securities, interest in a money market fund, and insurance contracts. As of December 31, 2005 and 2004, Entergy recognized an additional minimum pension liability for the excess of the accumulated benefit obligation over the fair market value of plan assets. In accordance with SFAS 87, an offsetting intangible asset, up to the amount of any unrecognized prior service cost, was also recorded, with the remaining offset to the liability recorded as a regulatory asset reflective of the recovery mechanism for pension costs in the U.S. Utility's jurisdictions or to other comprehensive income for Entergy's non-regulated business. Entergy's domestic utility companies' and System Ener gy's pension costs are recovered from customers as a component of cost of service in each of its jurisdictions. Entergy uses a December 31 measurement date for its pension plans. As a result of the Entergy New Orleans bankruptcy filing, Entergy has discontinued the consolidation of Entergy New Orleans retroactive to January 1, 2005, and is reporting Entergy New Orleans' results under the equity method of accounting.
Components of Qualified Net Pension Cost
Total 2005, 2004, and 2003 qualified pension costs of Entergy Corporation and its subsidiaries, including amounts capitalized, included the following components:
|
|
2005 |
|
2004 |
|
2003 |
|
|
(In Thousands) |
||||
|
|
|
|
|
|
|
Service cost - benefits earned |
|
$82,520 |
|
$76,946 |
|
$70,337 |
Interest cost on projected |
|
155,477 |
|
148,092 |
|
134,403 |
Expected return on assets |
|
(159,544) |
|
(153,584) |
|
(155,460) |
Amortization of transition asset |
|
(662) |
|
(763) |
|
(763) |
Amortization of prior service cost |
|
4,863 |
|
5,143 |
|
5,886 |
Recognized net loss |
|
35,604 |
|
21,687 |
|
6,399 |
Curtailment loss |
|
- |
|
- |
|
14,864 |
Special termination benefits |
|
- |
|
- |
|
32,006 |
Net pension costs |
|
$118,258 |
|
$97,521 |
|
$107,672 |
Qualified Pension Obligations, Plan Assets, Funded Status, Amounts Not Yet Recognized and Recognized in the Balance Sheet as of December 31, 2005 and 2004:
|
|
December 31, |
||
|
|
2005 |
|
2004 |
|
|
(In Thousands) |
||
|
|
|
|
|
Change in Projected Benefit Obligation (PBO) |
|
|
|
|
Balance at beginning of year |
|
$2,555,086 |
|
$2,349,565 |
Service cost |
|
82,520 |
|
76,946 |
Interest cost |
|
155,477 |
|
148,092 |
Amendments |
|
6,467 |
|
3,709 |
Actuarial loss |
|
211,194 |
|
171,146 |
Employee contributions |
|
1,032 |
|
1,212 |
Benefits paid |
|
(117,768) |
|
(117,234) |
Balance at end of year |
|
$2,894,008 |
|
$2,633,436 |
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
Fair value of assets at beginning of year |
|
$1,841,929 |
|
$1,744,975 |
Actual return on plan assets |
|
137,885 |
|
170,964 |
Employer contributions |
|
131,801 |
|
72,825 |
Employee contributions |
|
1,032 |
|
1,212 |
Benefits paid |
|
(117,768) |
|
(117,234) |
Fair value of assets at end of year |
|
$1,994,879 |
|
$1,872,742 |
|
|
|
|
|
Funded status |
|
($899,129) |
|
($760,694) |
|
|
|
|
|
Amounts not yet recognized in the balance sheet |
|
|
|
|
Unrecognized transition asset |
|
- |
|
(662) |
Unrecognized prior service cost |
|
29,393 |
|
29,053 |
Unrecognized net loss |
|
713,285 |
|
542,391 |
Accrued pension cost recognized in the balance sheet |
|
($156,451) |
|
($189,912) |
|
|
|
|
|
Amounts recognized in the balance sheet |
|
|
|
|
Accrued pension cost |
|
($156,451) |
|
($189,912) |
Additional minimum pension liability |
|
(406,463) |
|
(244,280) |
Intangible asset |
|
24,159 |
|
26,167 |
Accumulated other comprehensive income (before taxes) |
|
24,243 |
|
10,781 |
Regulatory asset |
|
358,061 |
|
207,332 |
Net amount recognized |
|
($156,451) |
|
($189,912) |
Other Postretirement Benefits
Entergy also currently provides health care and life insurance benefits for retired employees. Substantially all domestic employees may become eligible for these benefits if they reach retirement age while still working for Entergy. Entergy uses a December 31 measurement date for its postretirement benefit plans.
Effective January 1, 1993, Entergy adopted SFAS 106, which required a change from a cash method to an accrual method of accounting for postretirement benefits other than pensions. At January 1, 1993, the actuarially determined accumulated postretirement benefit obligation (APBO) earned by retirees and active employees was estimated to be approximately $241.4 million for Entergy (other than Entergy Gulf States) and $128 million for Entergy Gulf States. Such obligations are being amortized over a 20-year period that began in 1993. For the most part, the domestic utility companies and System Energy recover SFAS 106 costs from customers and are required to fund postretirement benefits collected in rates to an external trust.
Components of Net Other Postretirement Benefit Cost
Total 2005, 2004, and 2003 other postretirement benefit costs of Entergy Corporation and its subsidiaries, including amounts capitalized and deferred, included the following components:
|
|
2005 |
2004 |
2003 |
||
|
|
(In Thousands) |
||||
|
|
|
|
|
|
|
Service cost - benefits earned |
|
|
|
|
|
|
Interest cost on APBO |
|
51,883 |
|
53,801 |
|
52,746 |
Expected return on assets |
|
(17,402) |
|
(18,825) |
|
(15,810) |
Amortization of transition obligation |
|
3,368 |
|
9,429 |
|
15,193 |
Amortization of prior service cost |
|
(13,738) |
|
(5,222) |
|
(925) |
Recognized net (gain)/loss |
|
22,295 |
|
15,546 |
|
12,369 |
Curtailment loss |
|
- |
|
- |
|
57,958 |
Special termination benefits |
|
- |
|
- |
|
5,444 |
Net other postretirement benefit cost |
|
$83,716 |
|
$85,676 |
|
$164,774 |
Other Postretirement Benefit Obligations, Plan Assets, Funded Status, and Amounts Not Yet Recognized and Recognized in the Balance Sheet as of December 31, 2005 and 2004:
|
|
December 31, |
||
|
|
2005 |
|
2004 |
|
|
(In Thousands) |
||
|
|
|
|
|
Change in APBO |
|
|
|
|
Balance at beginning of year |
|
$928,217 |
|
$941,803 |
Service cost |
|
37,310 |
|
30,947 |
Interest cost |
|
51,883 |
|
53,801 |
Actuarial loss |
|
98,041 |
|
73,890 |
Benefits paid |
|
(60,031) |
|
(66,456) |
Plan amendments |
|
(64,200) |
|
(60,231) |
Plan participant contributions |
|
6,749 |
|
9,312 |
Balance at end of year |
|
$997,969 |
|
$983,066 |
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
Fair value of assets at beginning of year |
|
$214,005 |
|
$227,446 |
Actual return on plan assets |
|
15,003 |
|
15,550 |
Employer contributions |
|
58,790 |
|
63,399 |
Plan participant contributions |
|
6,749 |
|
9,312 |
Benefits paid |
|
(60,031) |
|
(66,455) |
Fair value of assets at end of year |
|
$234,516 |
|
$249,252 |
|
|
|
|
|
Funded status |
|
($763,453) |
|
($733,814) |
|
|
|
|
|
Amounts not yet recognized in the balance sheet |
|
|
|
|
Unrecognized transition obligation |
|
15,176 |
|
5,594 |
Unrecognized prior service cost |
|
(66,105) |
|
(39,560) |
Unrecognized net loss |
|
403,252 |
|
391,940 |
Accrued other postretirement benefit cost recognized in |
|
|
|
|
Qualified Pension and Other Postretirement Plans' Assets
Entergy's qualified pension and postretirement plans weighted-average asset allocations by asset category at December 31, 2005 and 2004 are as follows:
|
Pension |
|
Postretirement |
||||
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Domestic Equity Securities |
45% |
|
46% |
|
37% |
|
38% |
International Equity Securities |
21% |
|
21% |
|
15% |
|
14% |
Fixed-Income Securities |
32% |
|
31% |
|
47% |
|
47% |
Other |
2% |
|
2% |
|
1% |
|
1% |
Entergy's trust asset investment strategy is to invest the assets in a manner whereby long-term earnings on the assets (plus cash contributions) provide adequate funding for retiree benefit payments. The mix of assets is based on an optimization study that identifies asset allocation targets in order to achieve the maximum return for an acceptable level of risk, while minimizing the expected contributions and pension and postretirement expense.
In the optimization study, Entergy formulates assumptions (or hires a consultant to provide such analysis) about characteristics, such as expected asset class investment returns, volatility (risk), and correlation coefficients among the various asset classes. The future market assumptions used in the optimization study are determined by examining historical market characteristics of the various asset classes, and making adjustments to reflect future conditions expected to prevail over the study period.
The optimization analysis utilized in Entergy's latest study produced the following approved asset class target allocations.
|
Pension |
|
Postretirement |
|
|
|
|
Domestic Equity Securities |
45% |
|
37% |
International Equity Securities |
20% |
|
14% |
Fixed-Income Securities |
31% |
|
49% |
Other (Cash and GACs) |
4% |
|
0% |
These allocation percentages combined with each asset class' expected investment return produced an aggregate return expectation for the five years following the study of 7.6% for pension assets, 5.4% for taxable postretirement assets, and 7.2% for non-taxable postretirement assets. These returns are not inconsistent with Entergy's disclosed expected pre-tax return on assets of 8.50% over the life of the respective liabilities.
Since precise allocation targets are inefficient to manage security investments, the following ranges were established to produce an acceptable economically efficient plan to manage to targets:
|
Pension |
|
Postretirement |
|
|
|
|
Domestic Equity Securities |
45% to 55% |
|
32% to 42% |
International Equity Securities |
15% to 25% |
|
9% to 19% |
Fixed-Income Securities |
25% to 35% |
|
44% to 54% |
Other |
0% to 10% |
|
0% to 5% |
Accumulated Pension Benefit Obligation
The accumulated benefit obligation for Entergy's qualified pension plans was $2.5 billion and $2.3 billion at December 31, 2005 and 2004, respectively.
Estimated Future Benefit Payments
Based upon the assumptions used to measure Entergy's qualified pension and postretirement benefit obligation at December 31, 2005, and including pension and postretirement benefits attributable to estimated future employee service, Entergy expects that benefits to be paid over the next ten years will be as follows:
Estimated Future Benefits Payments | Estimated Future Medicare | ||||
Pension |
Postretirement |
Subsidy Receipts | |||
(In Thousands) |
|||||
Year(s) |
|
||||
2006 |
$118,291 |
|
$58,936 |
$4,241 |
|
2007 |
$120,343 |
|
$63,280 |
$4,928 |
|
2008 |
$123,592 |
|
$66,551 |
$5,618 |
|
2009 |
$128,281 |
|
$69,397 |
$6,249 |
|
2010 |
$134,532 |
$72,545 |
$6,810 |
||
2011 - 2015 |
$840,503 |
|
$405,161 |
$45,328 |
Contributions
Entergy expects to contribute $349 million (excluding about $1 million in employee contributions) to its qualified pension plans in 2006. $107 million of this contribution was originally planned for 2005, however it was delayed as a result of the Katrina Emergency Tax Relief Act. Entergy expects to contribute $60 million to other postretirement plans in 2006.
Additional Information
The change in the qualified pension plans' minimum pension liability included in other comprehensive income and regulatory assets was as follows for 2005 and 2004:
|
2005 |
|
2004 |
|
(In Thousands) |
||
Increase/(decrease) in the minimum pension liability included in: |
|
||
Other comprehensive income (before taxes) |
$13,462 |
|
($4,578) |
Regulatory assets |
$150,729 |
|
$73,311 |
Actuarial Assumptions
The assumed health care cost trend rate used in measuring the APBO of Entergy was 12% for 2006, gradually decreasing each successive year until it reaches 4.5% in 2012 and beyond. The assumed health care cost trend rate used in measuring the Net Other Postretirement Benefit Cost of Entergy was 10% for 2005, gradually decreasing each successive year until it reaches 4.5% in 2011 and beyond. A one percentage point change in the assumed health care cost trend rate for 2005 would have the following effects:
|
1 Percentage Point Increase |
|
1 Percentage Point Decrease |
|||||
|
|
|
Impact on the |
|
|
|
Impact on the |
|
Increase (Decrease) |
||||||||
|
|
|
|
|
|
|
|
|
Entergy Corporation |
$101,814 |
|
$12,727 |
|
($92,042) |
|
($10,998) |
The significant actuarial assumptions used in determining the pension PBO and the SFAS 106 APBO as of December 31, 2005, 2004, and 2003 were as follows:
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Weighted-average discount rate: |
|
|
|
|
|
Pension |
5.90% |
|
6.00% |
|
6.25% |
Other postretirement |
5.90% |
|
6.00% |
|
6.71% |
Weighted-average rate of increase |
|
|
|
|
|
The significant actuarial assumptions used in determining the net periodic pension and other postretirement benefit costs for 2005, 2004, and 2003 were as follows:
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Weighted-average discount rate: |
|
|
|
|
|
Pension |
6.00% |
|
6.25% |
|
6.75% |
Other postretirement |
6.00% |
|
6.71% |
|
6.75% |
Weighted-average rate of increase |
|
|
|
|
|
Expected long-term rate of |
|
|
|
|
|
Taxable assets |
5.50% |
|
5.50% |
|
5.50% |
Non-taxable assets |
8.50% |
|
8.75% |
|
8.75% |
Entergy's remaining pension transition assets are being amortized over the greater of the remaining service period of active participants or 15 years which ended in 2005, and its SFAS 106 transition obligations are being amortized over 20 years ending in 2012.
Voluntary Severance Program
As part of an initiative to achieve productivity improvements with a goal of reducing costs, primarily in the Non-Utility Nuclear and U.S. Utility businesses, in the second half of 2003 Entergy offered a voluntary severance program to employees in various departments. Approximately 1,100 employees, including 650 employees in nuclear operations from the Non-Utility Nuclear and U.S. Utility businesses, accepted the offers. As a result of this program, in the fourth quarter 2003 Entergy recorded additional pension and postretirement costs (including amounts capitalized) of $110.3 million for special termination benefits and plan curtailment charges. These amounts are included in the net pension cost and net postretirement benefit cost for the year ended December 31, 2003.
Medicare Prescription Drug, Improvement and Modernization Act of 2003
In December 2003, the President signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 into law. The Act introduces a prescription drug benefit cost under Medicare (Part D), starting in 2006, as well as federal subsidy to employers who provide a retiree prescription drug benefit that is at least actuarially equivalent to Medicare Part D.
The actuarially estimated effect of future Medicare subsidies reduced the December 31, 2005 and 2004 Accumulated Postretirement Benefit Obligation by $176 million and $161 million, respectively, and reduced the 2005 and 2004 other postretirement benefit cost by $24.3 million and $23.3 million, respectively.
Non-Qualified Pension Plans
Entergy also sponsors non-qualified, non-contributory defined benefit pension plans that provide benefits to certain executives. Entergy recognized net periodic pension cost of $16.4 million in 2005, $16.4 million in 2004, and $14.5 million in 2003. The projected benefit obligation was $142 million and $141 million as of December 31, 2005 and 2004, respectively. There are $0.4 million in plan assets for a pre-merger Entergy Gulf States plan. The accumulated benefit obligation was $133 million and $130 million as of December 31, 2005 and 2004, respectively. As of December 31, 2005, Entergy's additional minimum pension liability for the non-qualified pension plans was $63.1 million. This liability was offset by a $13.6 million intangible asset, $38.1 million regulatory asset, and a $11.4 million charge to accumulated other comprehensive income before taxes.
Entergy sponsors the Savings Plan of Entergy Corporation and Subsidiaries (System Savings Plan). The System
Savings Plan is a defined contribution plan covering eligible employees of Entergy and its subsidiaries. The employing Entergy subsidiary makes matching contributions for all non-bargaining and certain bargaining employees to the System Savings Plan in an amount equal to 70% of the participants' basic contributions, up to 6% of their eligible earnings per pay period. The 70% match is allocated to investments as directed by the employee.Through January 31, 2004, the System Savings Plan provided that the employing Entergy subsidiary make matching contributions in the following manner for all non-bargaining and certain bargaining employees. The employing Entergy subsidiary continues to make matching contributions in the following manner for all other bargaining employees who don't receive the 70% matching contribution discussed above. The System Savings Plan provides that the employing Entergy subsidiary make matching contributions:
Entergy's subsidiaries' contributions to defined contribution plans collectively were $33.8 million in 2005, $32.9 million in 2004, and $31.5 million in 2003. The majority of the contributions were to the System Savings Plan.
NOTE 11. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of December 31, 2005 are U.S. Utility and Non-Utility Nuclear. U.S. Utility generates, transmits, distributes, and sells electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and provides natural gas utility service in portions of Louisiana. Non-Utility Nuclear owns and operates five nuclear power plants and is primarily focused on selling electric power produced by those plants to wholesale customers. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the Energy Commodity Services segment, the Competitive Retail Services business, and earnings on the proceeds of sales of previously-owned businesses. The Energy Commodity Services segment was presented as a reportable segment prior to 2005, but it did not meet the quantitative thresholds for a reportable segment in 2005 and 2004, and with the sale of Entergy-Koch's businesses in 2004, management does not expect the Energy Commodit y Services segment to meet the quantitative thresholds in the foreseeable future. The 2004 and 2003 information in the tables below has been restated to include the Energy Commodity Services segment in the All Other column. As a result of the Entergy New Orleans bankruptcy filing, Entergy has discontinued the consolidation of Entergy New Orleans retroactive to January 1, 2005, and is reporting Entergy New Orleans results under the equity method of accounting in the U.S. Utility segment.
Entergy's segment financial information is as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
||||||||
Operating revenues |
$8,526,943 |
|
$1,421,547 |
|
$237,735 |
|
($79,978) |
|
$10,106,247 |
Deprec., amort. & decomm. |
$867,755 |
|
$117,752 |
|
$13,991 |
|
$- |
|
$999,498 |
Interest and dividend income |
$75,748 |
|
$66,836 |
|
$78,185 |
|
($70,290) |
|
$150,479 |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
Interest and other charges |
$364,665 |
|
$50,874 |
|
$130,302 |
|
($70,237) |
|
$475,604 |
Income taxes (benefits) |
$405,662 |
|
$163,865 |
|
($10,243) |
|
$- |
|
$559,284 |
Loss from discontinued operations |
$- |
|
$- |
|
($44,794) |
|
$- |
|
($44,794) |
Net income (loss) |
$681,767 |
|
$282,622 |
|
($40,544) |
|
($87) |
|
$923,758 |
Preferred dividend requirements |
$22,007 |
$- |
$3,475 |
($55) |
$25,427 |
||||
Earnings (loss) applicable to |
|
|
|
|
|
||||
Total assets |
$25,242,432 |
|
$4,887,572 |
|
$3,477,169 |
|
($2,755,904) |
|
$30,851,269 |
Investment in affiliates - at equity |
$150,135 |
|
$- |
|
$428,006 |
|
($281,357) |
|
$296,784 |
Cash paid for long-lived asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
||||||||
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$8,142,808 |
|
$1,341,852 |
|
$265,051 |
|
($64,190) |
|
$9,685,521 |
Deprec., amort. & decomm. |
$915,667 |
|
$106,408 |
|
$21,028 |
|
$- |
|
$1,043,103 |
Interest and dividend income |
$40,831 |
|
$63,569 |
|
$60,430 |
|
($55,195) |
|
$109,635 |
Equity in loss of |
|
|
|
|
|
|
|
|
|
Interest and other charges |
$383,032 |
|
$53,657 |
|
$96,229 |
|
($55,142) |
|
$477,776 |
Income taxes (benefits) |
$406,864 |
|
$142,620 |
|
($184,179) |
|
$- |
|
$365,305 |
Loss from discontinued operations |
$- |
|
$- |
|
($41) |
|
$- |
|
($41) |
Net income |
$666,691 |
|
$245,029 |
|
$21,384 |
|
($55) |
|
$933,049 |
Preferred dividend requirements |
$23,283 |
$- |
$297 |
($55) |
$23,525 |
||||
Earnings applicable to common |
|
|
|
|
|
||||
Total assets |
$22,937,237 |
|
$4,531,604 |
|
$2,423,194 |
|
($1,581,258) |
|
$28,310,777 |
Investment in affiliates - at equity |
$207 |
|
$- |
|
$512,571 |
|
($280,999) |
|
$231,779 |
Cash paid for long-lived asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
||||||||
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$7,584,857 |
|
$1,274,983 |
|
$210,910 |
|
($38,036) |
|
$9,032,714 |
Deprec., amort. & decomm. |
$890,092 |
|
$87,825 |
|
$17,954 |
|
$- |
|
$995,871 |
Interest and dividend income |
$43,035 |
|
$36,874 |
|
$45,651 |
|
($38,226) |
|
$87,334 |
Equity in earnings (loss) of |
|
|
|
|
|
|
|
|
|
Interest and other charges |
$419,111 |
|
$34,460 |
|
$90,295 |
|
($38,225) |
|
$505,641 |
Income taxes |
$341,044 |
|
$88,619 |
|
$67,770 |
|
$- |
|
$497,433 |
Loss from discontinued operations |
$- |
|
$- |
|
($14,404) |
|
$- |
|
($14,404) |
Cumulative effect of accounting |
|
|
|
|
|
|
|
|
|
Net income |
$492,574 |
|
$300,799 |
|
$157,094 |
|
$- |
|
$950,467 |
Preferred dividend requirements |
$23,524 |
$- |
$- |
$- |
$23,524 |
||||
Earnings applicable to common |
|
|
|
|
|
||||
Total assets |
$22,402,314 |
|
$4,171,777 |
|
$3,572,824 |
|
($1,619,527) |
|
$28,527,388 |
Investment in affiliates - at equity |
$211 |
|
$- |
|
$1,081,462 |
|
($28,345) |
|
$1,053,328 |
Cash paid for long-lived asset |
|
|
|
|
|
|
|
|
|
Businesses marked with * are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity.
In the fourth quarter of 2005, Entergy decided to divest the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas. Due to this planned divestiture, activity from this business is reported as discontinued operations in the Consolidated Statements of Income. In connection with the planned sale, an impairment reserve of $39.8 million ($25.8 million net-of-tax) was recorded for the remaining net book value of the Competitive Retail Services business' information technology systems.
Revenues and pre-tax income (loss) related to the Competitive Retail Services business' discontinued operations were as follows:
|
2005 |
2004 |
2003 |
|||
|
(In Thousands) |
|||||
Operating revenues |
|
$654,333 |
$438,203 |
$162,206 |
||
Pre-tax income (loss) |
|
($68,845) |
$562 |
($21,763) |
Assets and liabilities related to the Competitive Retail Services business' discontinued operations were as follows:
December 31, |
||||
2005 |
2004 |
|||
(In Thousands) |
||||
Current assets |
$89,579 |
$85,572 |
||
Other property and investments |
15,095 |
5,061 |
||
Property, plant and equipment - net |
19,587 |
27,867 |
||
Deferred debits and other assets |
20,903 |
15,263 |
||
Total assets |
$145,164 |
$133,763 |
Current liabilities |
$26,036 |
$32,552 |
||
Non-current liabilities |
35,884 |
6,298 |
||
Equity |
83,244 |
94,913 |
||
Total liabilities and equity |
$145,164 |
$133,763 |
Also, in the fourth quarter of 2004, Entergy recorded a charge of approximately $55 million ($36 million net-of-tax) as a result of an impairment of the value of the Warren Power plant. Entergy concluded that the value of the plant, which is owned in the non-nuclear wholesale assets business, was impaired. Entergy reached this conclusion based on valuation studies prepared in connection with the sale of preferred stock in a subsidiary in the non-nuclear wholesale assets business.
Geographic Areas
For the years ended December 31, 2005, 2004, and 2003, Entergy derived less than 1% of its revenue from outside of the United States.
As of December 31, 2005 and 2004, Entergy had almost no long-lived assets located outside of the United States.
NOTE 12. EQUITY METHOD INVESTMENTS
As of December 31, 2005, Entergy owns investments in the following companies that it accounts for under the equity method of accounting:
Company |
Ownership |
Description |
||
Entergy New Orleans, Inc. |
100% ownership of common stock |
A regulated public utility company that generates, transmits, distributes, and sells electric power to retail and wholesale customers. As a result of Entergy New Orleans' bankruptcy filing in September 2005, Entergy deconsolidated Entergy New Orleans and reflects Entergy New Orleans' financial results under the equity method of accounting retroactive to January 1, 2005. See Note 16 for further discussion of the bankruptcy proceeding. |
||
Entergy-Koch, LP |
50% partnership interest |
Engaged in two major businesses: energy commodity marketing and trading through Entergy-Koch Trading, and gas transportation and storage through Gulf South Pipeline. Entergy-Koch sold both of these businesses in the fourth quarter of 2004, and Entergy-Koch is no longer an operating entity. |
||
RS Cogen LLC |
50% member interest |
Co-generation project that produces power and steam on an industrial and merchant basis in the Lake Charles, Louisiana area. |
||
Top Deer |
50% member interest |
Wind-powered electric generation joint venture. |
Following is a reconciliation of Entergy's investments in equity affiliates:
2005 |
2004 |
2003 |
||||
(In Thousands) |
||||||
|
|
|
|
|
|
|
Beginning of year |
$231,779 |
$1,053,328 |
$824,209 |
|||
Deconsolidation of Entergy New |
|
|
|
|||
Additional investments |
- |
157,020 |
4,668 |
|||
Income (loss) from the investments |
985 |
(78,727) |
271,647 |
|||
Other income |
- |
6,232 |
45,583 |
|||
Distributions received |
(80,901) |
(888,260) |
(105,142) |
|||
Dispositions and other adjustments |
(9,541) |
(17,814) |
12,363 |
|||
End of year |
$296,784 |
$231,779 |
$1,053,328 |
The following is a summary of combined financial information reported by Entergy's equity method investees:
|
2005 |
2004 |
2003 |
|||
|
(In Thousands) |
|||||
Income Statement Items |
|
|
|
|||
Operating revenues |
|
$721,410 |
|
$270,177 |
|
$585,404 |
Operating income |
|
$9,526 |
|
($111,535) |
|
$207,301 |
Net income |
|
$1,592 |
|
$739,858 (1) |
|
$172,595 |
|
|
|
|
|
|
|
Balance Sheet Items |
||||||
Current assets |
|
$415,586 |
|
$540,386 |
|
|
Noncurrent assets |
|
$1,498,465 |
|
$418,038 |
|
|
Current liabilities |
|
$544,030 |
|
$180,009 |
|
|
Noncurrent liabilities |
|
$999,346 |
|
$463,899 |
|
(1) |
Includes gains recorded by Entergy-Koch on the sales of its energy trading and pipeline businesses. |
Related-party transactions and guarantees
See Note 16 to the consolidated financial statements for a discussion of the Entergy New Orleans bankruptcy proceedings and activity between Entergy and Entergy New Orleans.
During 2004 and 2003, Entergy procured various services from Entergy-Koch consisting primarily of pipeline transportation services for natural gas and risk management services for electricity and natural gas. The total cost of such services in 2004 and 2003 was approximately $9.5 million and $15.9 million, respectively. There were no related party transactions between Entergy-Koch and Entergy in 2005. Entergy Louisiana and Entergy New Orleans entered into purchase power agreements with RS Cogen, and purchased a total of $61.2 million, $43.6 million, and $26.0 million of capacity and energy from RS Cogen in 2005, 2004, and 2003, respectively. Entergy's operating transactions with its other equity method investees were not material in 2005, 2004, or 2003.
In the purchase agreements for its energy trading and the pipeline business sales, Entergy-Koch agreed to indemnify the respective purchasers for certain potential losses relating to any breaches of the sellers' representations, warranties, and obligations under each of the purchase agreements. Entergy Corporation has guaranteed up to 50% of Entergy-Koch's indemnification obligations to the purchasers. Entergy does not expect any material claims under these indemnification obligations, but to the extent that any are asserted and paid, the gain that Entergy expects to record in 2006 may be reduced.
During the fourth quarter of 2004, an Entergy subsidiary purchased from a commercial bank holder $16.3 million of RS Cogen subordinated indebtedness, due October 2017, bearing interest at LIBOR plus 4.50%. The debt was purchased at a discount of approximately $2.4 million that was to be amortized over the remaining life of the debt. In June 2005, 100% of the $16.0 million balance of the subordinated indebtedness was sold to a lending institution for 100.75% of par.
NOTE 13. ACQUISITIONS AND DISPOSITIONS
Asset Acquisitions
In June 2005, Entergy Louisiana purchased the 718 MW Perryville power plant located in northeast Louisiana for $162 million from a subsidiary of Cleco Corporation. Entergy received the plant, materials and supplies, SO2 emission allowances, and related real estate. The LPSC approved the acquisition and the long-term cost-of-service purchased power agreement under which Entergy Gulf States will purchase 75 percent of the plant's output.
Asset Dispositions
Entergy-Koch Businesses
In the fourth quarter of 2004, Entergy-Koch sold its energy trading and pipeline businesses to third parties. The sales came after a review of strategic alternatives for enhancing the value of Entergy-Koch, LP. Entergy received $862 million of cash distributions in 2004 from Entergy-Koch after the business sales, and Entergy ultimately expects to receive total net cash distributions exceeding $1 billion, comprised of the after-tax cash from the distributions of the sales proceeds and the eventual liquidation of Entergy-Koch. Entergy currently expects the net cash distributions that it will receive will exceed its equity investment in Entergy-Koch, and expects to record a $60 million net-of-tax gain when it receives the remaining cash distributions, which it expects will occur in 2006.
Other
In January 2004, Entergy sold its 50% interest in the Crete project, which is a 320MW power plant located in Illinois, and realized an insignificant gain on the sale.
In the fourth quarter of 2004, Entergy sold undivided interests in the Warren Power and the Harrison County plants at a price that approximated book value.
NOTE 14. RISK MANAGEMENT AND FAIR VALUES
Market and Commodity Risks
In the normal course of business, Entergy is exposed to a number of market and commodity risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular instrument or commodity. All financial and commodity-related instruments, including derivatives, are subject to market risk. Entergy is subject to a number of commodity and market risks, including:
Type of Risk |
|
Primary Affected Segments |
|
||
Power price risk |
|
U.S. Utility, Non-Utility Nuclear, Energy Commodity Services |
Fuel price risk |
|
U.S. Utility, Non-Utility Nuclear, Energy Commodity Services |
Foreign currency exchange rate risk |
|
U.S. Utility, Non-Utility Nuclear, Energy Commodity Services |
Equity price and interest rate risk - investments |
|
U.S. Utility, Non-Utility Nuclear |
Entergy manages these risks through both contractual arrangements and derivatives. Contractual risk management tools include long-term power and fuel purchase agreements, capacity contracts, and tolling agreements. Entergy also uses a variety of commodity and financial derivatives, including natural gas and electricity futures, forwards, swaps, and options; foreign currency forwards; and interest rate swaps as a part of its overall risk management strategy. Except for the energy trading activities conducted through December 2004 by Entergy-Koch, Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities.
Entergy's exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option's contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy's risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure thei r appropriateness given Entergy's objectives.
Hedging Derivatives
Entergy classifies substantially all of the following types of derivative instruments held by its consolidated businesses as cash flow hedges:
Instrument |
|
Business Segment |
|
||
Natural gas and electricity futures and forwards |
|
Non-Utility Nuclear, Energy Commodity Services, |
Foreign currency forwards |
|
U.S. Utility, Non-Utility Nuclear |
Cash flow hedges with net unrealized losses of approximately $391 million at December 31, 2005 are scheduled to mature during 2006. Net losses totaling approximately $218 million were realized during 2005 on the maturity of cash flow hedges. Unrealized gains or losses result from hedging power output at the Non-Utility Nuclear power stations and foreign currency hedges related to Euro-denominated nuclear fuel acquisitions. The related gains or losses from hedging power are included in revenues when realized. The realized gains or losses from foreign currency transactions are included in the cost of capitalized fuel. The maximum length of time over which Entergy is currently hedging the variability in future cash flows for forecasted transactions at December 31, 2005 is approximately three years. The ineffective portion of the change in the value of Entergy's cash flow hedges during 2005, 2004, and 2003 was insignificant.
Fair Values
Financial Instruments
The estimated fair value of Entergy's financial instruments is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. The estimated fair value of derivative financial instruments is based on market quotes. Considerable judgment is required in developing some of the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. In addition, gains or losses realized on financial instruments held by regulated businesses may be reflected in future rates and therefore do not necessarily accrue to the benefit or detriment of stockholders.
Entergy considers the carrying amounts of most of its financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Additional information regarding financial instruments and their fair values is included in Notes 5 and 6 to the consolidated financial statements.
NOTE 15. DECOMMISSIONING TRUST FUNDS
Entergy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts. The securities held at December 31, 2005 and 2004 are summarized as follows:
|
Fair |
|
Total |
|
Total |
|
|
(In Millions) |
|||||
2005 |
|
|
|
|
|
|
Equity |
|
$1,502 |
|
$280 |
|
$12 |
Debt Securities |
|
1,105 |
|
20 |
|
10 |
Total |
|
$2,607 |
|
$300 |
|
$22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
Equity |
|
$995 |
|
$166 |
|
$17 |
Debt Securities |
|
1,457 |
|
33 |
|
6 |
Total |
|
$2,452 |
|
$199 |
|
$23 |
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at December 31, 2005:
|
|
Equity Securities |
|
Debt Securities |
||||
|
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
|
(In Millions) |
||||||
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
$27 |
|
$1 |
|
$425 |
|
$6 |
More than 12 months |
|
104 |
|
11 |
|
116 |
|
4 |
Total |
|
$131 |
|
$12 |
|
$541 |
|
$10 |
Entergy evaluates these unrealized gains and losses at the end of each period to determine whether an other than temporary impairment has occurred. This analysis considers the length of time that a security has been in a loss position, the current performance of that security, and whether decommissioning costs are recovered in rates. Due to the regulatory treatment of decommissioning collections and trust fund earnings, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy record regulatory assets or liabilities for unrealized gains and losses on trust investments. For the unregulated portion of River Bend, Entergy Gulf States has recorded an offsetting amount of unrealized gains or losses in other deferred credits. No significant impairments were recorded in 2005 and 2004 as a result of these evaluations.
The fair value of debt securities, summarized by contractual maturities, at December 31, 2005 and 2004 are as follows:
2005 |
2004 |
|||
(In Millions) |
||||
less than 1 year |
$80 |
$134 |
||
1 year - 5 years |
357 |
592 |
||
5 years - 10 years |
382 |
425 |
||
10 years - 15 years |
116 |
158 |
||
15 years - 20 years |
73 |
60 |
||
20 years+ |
97 |
88 |
||
Total |
$1,105 |
$1,457 |
During the year ended December 31, 2005, the proceeds from the dispositions of securities amounted to $50 million with gross gains of $0.7 million and gross losses of $2.3 million, which were reclassified out of other comprehensive income into earnings during the period. During the year ended December 31, 2004, the proceeds from the dispositions of securities amounted to $37 million with gross gains of $0.7 million and gross losses of $0.7 million, which were reclassified out of other comprehensive income into earnings during the period.
NOTE 16. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
Because of the effects of Hurricane Katrina, on September 23, 2005, Entergy New Orleans filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Louisiana seeking reorganization relief under the provisions of Chapter 11 of the United States Bankruptcy Code (Case No. 05-17697). Entergy New Orleans continues to operate its business as a debtor-in-possession under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the bankruptcy court.
In September 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor in possession credit facility to provide funding to Entergy New Orleans during its business restoration efforts. On December 9, 2005, the bankruptcy court issued its final order approving the DIP credit agreement, including the priority and lien status of the indebtedness under the agreement. The credit facility provides for up to $200 million in loans. The facility enables Entergy New Orleans to request funding from Entergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. As of December 31, 2005, Entergy New Orleans had outstanding borrowings of $90 million under the DIP credit agreement.
Entergy owns 100 percent of the common stock of Entergy New Orleans, has continued to supply general and administrative services, and has provided debtor-in-possession financing to Entergy New Orleans. Uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, however, have caused Entergy to deconsolidate Entergy New Orleans and reflect Entergy New Orleans' financial results under the equity method of accounting retroactive to January 1, 2005. Because Entergy owns all of the common stock of Entergy New Orleans, this change will not affect the amount of net income Entergy records resulting from Entergy New Orleans' operations for any current or prior period, but will result in Entergy New Orleans' net income for 2005 being presented as "Equity in earnings (loss) of unconsolidated equity affiliates" rather than its results being included in each individual income statement line item, as is the case for periods prior to 2005. Entergy reviewed the carrying value of its investment in Entergy New Orleans to determine if an impairment had occurred as a result of the storm, the flood, the power outages, restoration costs and changes in customer load. Entergy determined that as of December 31, 2005, no impairment had occurred because management believes that recovery is probable. Entergy will continue to assess the carrying value of its investment in Entergy New Orleans as developments occur in Entergy New Orleans' recovery efforts.
Entergy's results of operations for 2005 include $207.2 million in operating revenues, primarily from sales of power by Entergy consolidated subsidiaries to Entergy New Orleans, and $117.5 million in purchased power, primarily from purchases of power by Entergy consolidated subsidiaries from Entergy New Orleans. As stated above, however, because Entergy owns all of the common stock of Entergy New Orleans, the deconsolidation of Entergy New Orleans does not affect the amount of net income Entergy records resulting from Entergy New Orleans' operations.
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating results for the four quarters of 2005 and 2004 were:
|
Operating |
Operating |
Net |
||
|
(In Thousands) |
||||
2005: |
|
||||
First Quarter |
$2,110,182 |
$311,008 |
$178,620 |
||
Second Quarter |
$2,445,389 |
$515,573 |
$292,789 |
||
Third Quarter |
$2,898,259 |
$654,339 |
$356,388 |
||
Fourth Quarter |
$2,652,417 |
$311,069 |
$95,961 |
||
2004: |
|||||
First Quarter |
$2,169,983 |
$379,020 |
$213,016 |
||
Second Quarter |
$2,379,668 |
$491,267 |
$271,011 |
||
Third Quarter |
$2,832,642 |
$570,316 |
$288,047 |
||
Fourth Quarter |
$2,303,228 |
$209,569 |
$160,975 |
(a) |
Operating revenues are lower by $102,461 in the first quarter 2005 and $110,597 in the second quarter 2005 due to the deconsolidation of Entergy New Orleans retroactive to January 1, 2005. Operating revenues are lower by $110,771 in the first quarter 2005, $153,533 in the second quarter 2005, $231,472 in the third quarter 2005, $81,566 in the first quarter 2004, $105,429 in the second quarter 2004, and $130,939 in the third quarter 2004 due to the treatment of a portion of the Competitive Retail Services business as a discontinued operation. |
(b) |
Operating income is lower by $12,521 in the first quarter 2005 and $17,934 in the second quarter 2005 due to the deconsolidation of Entergy New Orleans retroactive to January 1, 2005. Operating income is lower (higher) by ($1,850) in the first quarter 2005, ($3,897) in the second quarter 2005, ($10,502) in the third quarter 2005, ($186) in the first quarter 2004, $3,045 in the second quarter 2004, and $1,156 in the third quarter 2004 due to the treatment of a portion of the Competitive Retail Services business as a discontinued operation. |
Earnings per Average Common Share
2005 |
2004 |
||||||
Basic |
Diluted |
Basic |
Diluted |
||||
First Quarter |
$0.80 |
$0.79 |
$0.90 |
$0.88 |
|||
Second Quarter |
$1.36 |
$1.33 |
$1.16 |
$1.14 |
|||
Third Quarter |
$1.68 |
$1.65 |
$1.24 |
$1.22 |
|||
Fourth Quarter |
$0.43 |
$0.42 |
$0.71 |
$0.69 |
ENTERGY'S BUSINESS (continued from page 3)
U.S. Utility
The U.S. Utility is Entergy's largest business segment, with five wholly-owned domestic retail electric utility subsidiaries: Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. These companies generate, transmit, distribute and sell electric power to retail and wholesale customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy Gulf States and Entergy New Orleans also provide natural gas utility services to customers in and around Baton Rouge, Louisiana, and New Orleans, Louisiana, respectively. Also included in the U.S. Utility is System Energy, a wholly-owned subsidiary of Entergy Corporation that owns or leases 90 percent of Grand Gulf. System Energy sells its power and capacity from Grand Gulf at wholesale to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
These utility subsidiaries are each regulated by state utility commissions, and in the case of Entergy New Orleans, the City Council. System Energy is regulated by FERC as all of its transactions are at the wholesale level. The U.S. Utility continues to operate as a monopoly as efforts toward deregulation have been delayed, abandoned, or not initiated in its service territories. The overall generation portfolio of the U.S. Utility, which relies heavily on natural gas and nuclear generation, is consistent with Entergy's strong support for the environment.
The U.S. Utility is focused on providing highly reliable and cost effective electricity and gas service while working in an environment that provides the highest level of safety for its employees. Since 1998, the U.S. Utility has significantly improved key customer service, reliability, and safety metrics and continues to actively pursue additional improvements.
Entergy Louisiana Corporate Restructuring
Effective December 31, 2005, Entergy Louisiana, LLC, a limited liability company organized under the laws of the State of Texas as part of a restructuring involving a Texas statutory merger-by-division, succeeded to all of the regulated utility operations of Entergy Louisiana, Inc. Entergy Louisiana, LLC was allocated substantially all of the property and other assets of Entergy Louisiana, Inc., including all assets used to provide retail and wholesale electric service to Entergy Louisiana, Inc.'s customers. Entergy Louisiana, LLC also assumed substantially all of the liabilities of Entergy Louisiana, Inc., including all of its debt securities and leases but excluding the outstanding preferred stock of Entergy Louisiana, Inc.
As the operator of Entergy Louisiana, Inc.'s retail utility operations, Entergy Louisiana, LLC is subject to the jurisdiction of the LPSC over electric service, rates and charges to the same extent that the LPSC possessed jurisdiction over Entergy Louisiana, Inc.'s retail utility operations. The restructuring is intended to reduce corporate franchise taxes. The restructuring implements a recommendation from the LPSC staff and is expected to result in a decrease in Entergy Louisiana, LLC's rates to its Louisiana retail customers.
On December 31, 2005, and immediately prior to the formation of Entergy Louisiana, LLC, Entergy Louisiana, Inc. changed its state of incorporation from Louisiana to Texas and its name to Entergy Louisiana Holdings, Inc. Upon the effectiveness of the statutory merger-by-division on December 31, 2005, Entergy Louisiana, LLC was organized and Entergy Louisiana Holdings held all of Entergy Louisiana, LLC's common membership interests. All of the common membership interests of Entergy Louisiana, LLC continue to be held by Entergy Louisiana Holdings and all of the common stock of Entergy Louisiana Holdings continues to be held by Entergy Corporation. As part of the merger-by-division, Entergy Louisiana Holdings succeeded to Entergy Louisiana, Inc.'s rights and obligations with respect to Entergy Louisiana, Inc.'s outstanding preferred stock, which has an aggregate par value of approximately $100 million. Within three to nine months of the effective date of the merger-by-division, however, En tergy Louisiana Holdings expects to redeem or repurchase and retire the Entergy Louisiana, Inc. preferred stock then outstanding and thereafter amend its charter to eliminate authority to issue preferred stock.
Entergy Louisiana Holdings also holds all of the common membership interests in Entergy Louisiana Properties, LLC, a Texas limited liability company that, as part of the restructuring, was organized and allocated the Entergy Louisiana, Inc. assets not allocated to Entergy Louisiana, LLC. The assets allocated to Entergy Louisiana Properties were two tracts of undeveloped real estate, known as the St. Rosalie and Wilton Plant sites, and Entergy Louisiana, Inc.'s equity ownership interest in and a long-term note receivable from System Fuels, Inc., a company also owned by Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans, which implements and maintains certain programs for the purchase, delivery and storage of fuel supplies for Entergy's utility subsidiaries. Entergy Louisiana Properties also assumed any obligations and liabilities relating to these assets. The book value of the assets allocated to Entergy Louisiana Properties is approximately $33 million.
After the restructuring and merger-by-division the financial statements of Entergy Louisiana Holdings will be on a consolidated basis including Entergy Louisiana, LLC and Entergy Louisiana Properties and will carry forward the retained earnings of Entergy Louisiana, Inc. at December 31, 2005. As result of the merger-by-division and related accounting, the balance sheet of Entergy Louisiana, LLC will not carry forward the retained earnings of Entergy Louisiana, Inc. at December 31, 2005. The Federal Power Act restricts the ability of a public utility to pay dividends out of capital. As a result of its restructuring and the related accounting, Entergy Louisiana, LLC applied to the FERC for a declaratory order to pay dividends on its common and preferred membership interests from the following sources: (1) the amount of Entergy Louisiana, Inc.'s retained earnings immediately prior to its restructuring on December 31, 2005; (2) an amount in excess of the amount in (1) over a t ransition period not expected to last more than 3 years so long as Entergy Louisiana, LLC's proprietary capital ratio is, and will remain, above 30%; and (3) the amount of Entergy Louisiana, LLC's retained earnings after the restructuring. The FERC granted the declaratory order on January 23, 2006. Dividends paid by Entergy Louisiana, LLC on its common membership interests to Entergy Louisiana Holdings may, in turn, be paid by Entergy Louisiana Holdings to its common and preferred stockholders without the need for FERC approval. As a wholly-owned subsidiary, Entergy Louisiana Holdings dividends its earnings to Entergy Corporation, as the common stockholder, on a percentage determined monthly.
Entergy Louisiana, LLC will not join in the filing of Entergy's consolidated federal income tax return, although it will be consolidated for financial reporting purposes. Entergy Louisiana, LLC will file a separate federal income tax return, will pay federal income taxes on a stand-alone basis, and will not be a party to the Entergy System's intercompany tax allocation agreement. Entergy Louisiana, LLC may make elections for tax proposes that may differ from those made by the Entergy consolidated tax group, which may result in Entergy Louisiana, LLC having more exposure to tax liability than it would have had, had it been included in the Entergy consolidated tax return, thereby adversely affecting Entergy Louisiana, LLC's financial condition. Entergy Louisiana Holdings will continue as a party to the Entergy System's intercompany tax allocation agreement.
After the merger-by-division, Entergy Louisiana, LLC issued $100 million of its preferred membership interests, which grant the holders thereof the power to vote together, as a single class, with Entergy Corporation as the holder of the common membership interests. The preferred membership interests have approximately 23% of the total voting power. Since Entergy Corporation, indirectly through Entergy Louisiana Holdings, owns all of the common membership interests in Entergy Louisiana, LLC, Entergy Corporation will be able to elect the entire board of directors of Entergy Louisiana, LLC, except in certain circumstances when distributions on Entergy Louisiana, LLC's preferred membership interests are in arrears.
Hurricane Katrina and Hurricane Rita
The temporary power outages associated with Hurricanes Katrina and Rita in the affected service territory caused Entergy Louisiana's and Entergy New Orleans' sales volume to be lower than normal from September 2005 through December 2005. The number of customers as of December 31, 2005 compared to December 31, 2004 decreased by 44,000 at Entergy Louisiana and by 20,000 and 15,000 for electric and gas, respectively, at Entergy New Orleans. The customer figures below include customers who are able to accept service but have not yet returned to their homes. Restoration for many of the customers who are unable to accept service will follow major repairs or reconstruction of customer facilities, and will be contingent on validation by local authorities of habitability and electrical safety of customers' structures.
Customers
As of December 31, 2005, Entergy's domestic utility companies provided retail electric and gas service to customers in Arkansas, Louisiana, Mississippi, and Texas, as follows (in the case of Entergy Louisiana and Entergy New Orleans, due to the effect of Hurricane Katrina, the number represents customers who are able to accept service, but have not necessarily returned to their homes) :
Electric Customers |
Gas Customers |
||||||||
Area Served |
(In Thousands) |
(%) |
(In Thousands) |
(%) |
|||||
Entergy Arkansas |
Portions of Arkansas |
675 |
26% |
||||||
Entergy Gulf States |
Portions of Texas and |
740 |
28% |
89 |
41% |
||||
Entergy Louisiana |
Portions of Louisiana |
618 |
24% |
||||||
Entergy Mississippi |
Portions of Mississippi |
427 |
16% |
||||||
Entergy New Orleans |
City of New Orleans* |
169 |
6% |
130 |
59% |
||||
Total customers |
2,629 |
100% |
219 |
100% |
* |
Excludes the Algiers area of the city, where Entergy Louisiana provides electric service. |
Electric Energy Sales
The electric energy sales of Entergy's domestic utility companies are subject to seasonal fluctuations, with the peak sales period normally occurring during the third quarter of each year. On July 25, Entergy reached a 2005 peak demand of 21,391 MW, compared to the 2004 peak of 21,174 MW recorded on July 15 of that year. Selected electric energy sales data is shown in the table below:
Selected 2005 Electric Energy Sales Data
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
Entergy |
||||||||
(In GWh) |
||||||||||||||
Sales to retail |
|
|
|
|
|
|
|
|||||||
Sales for resale: |
||||||||||||||
Affiliates |
4,555 |
3,213 |
2,451 |
516 |
1,705 |
9,070 |
- |
|||||||
Others |
4,103 |
2,804 |
109 |
420 |
336 |
- |
5,730 |
|||||||
Total |
29,663 |
39,935 |
29,449 |
14,277 |
6,753 |
9,070 |
100,883 |
|||||||
Average use per |
|
|
|
|
|
|
|
(a) |
Includes the effect of intercompany eliminations. |
(b) |
Because of the Entergy New Orleans bankruptcy filing, Entergy deconsolidated Entergy New Orleans; therefore, Entergy New Orleans electric sales are excluded. |
The following table illustrates the domestic utility companies' 2005 combined electric sales volume as a percentage of total electric sales volume, and 2005 combined electric revenues as a percentage of total 2005 electric revenue, each by customer class.
Customer Class |
% of Sales Volume |
% of Revenue |
||
Residential |
31.3 |
34.5 |
||
Commercial |
24.2 |
24.1 |
||
Industrial (a) |
37.3 |
28.6 |
||
Governmental |
1.5 |
1.7 |
||
Wholesale |
5.7 |
11.1 |
(a) |
Major industrial customers are in the chemical, petroleum refining, and paper industries. |
See "Selected Financial Data" for each of the domestic utility companies for the detail of their sales by customer class for 2003, 2004, and 2005.
Selected 2005 Natural Gas Sales Data
Entergy New Orleans and Entergy Gulf States provide both electric power and natural gas to retail customers. Entergy New Orleans and Entergy Gulf States sold 12,329,794 and 6,717,077 Mcf, respectively, of natural gas to retail customers in 2005. In 2005, 98% of Entergy Gulf States' operating revenue was derived from the electric utility business, and only 2% from the natural gas distribution business. For Entergy New Orleans, 80% of operating revenue was derived from the electric utility business and 20% from the natural gas distribution business in 2005. Following is data concerning Entergy New Orleans' 2005 retail operating revenue sources.
|
Electric Operating |
Natural Gas |
||
Residential |
39% |
47% |
||
Commercial |
38% |
21% |
||
Industrial |
8% |
15% |
||
Governmental/Municipal |
15% |
17% |
Retail Rate Regulation
General (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
The retail regulatory philosophy has shifted in some jurisdictions from traditional, cost-of-service regulation to include performance-based rate elements. Performance-based rate plans are designed to encourage efficiencies and productivity while permitting utilities and their customers to share in the benefits. Entergy Louisiana, the Louisiana jurisdiction of Entergy Gulf States, Entergy Mississippi, and Entergy New Orleans have implemented performance-based formula rate plans.
Following is a summary of the status of retail open access in the domestic utility companies' retail service territories.
Jurisdiction |
Status of Retail Open Access |
|
|
|
|
Arkansas |
|
Retail open access was repealed in February 2003. |
|
|
|
Texas |
|
In December 2005, Entergy Gulf States made a filing identifying three potential power region(s) to be considered for certification and the steps and schedule to achieve certification. The Texas law enacted in 2005 requires Entergy Gulf States to also file a transition to competition plan by January 1, 2007 addressing how Entergy Gulf States intends to mitigate market power and achieve full customer choice which will be affected by the power region selected. |
|
|
|
Louisiana |
|
The LPSC has deferred pursuing retail open access, pending developments at the federal level and in other states. In response to a study submitted to the LPSC that was funded by a group of large industrial customers, the LPSC recently has solicited comments regarding a limited retail access program. A technical conference was held in April 2005. |
|
|
|
Mississippi |
|
The MPSC has recommended not pursuing open access at this time. |
|
|
|
New Orleans |
|
The Council has taken no action on Entergy New Orleans' proposal filed in 1997. |
Retail Rates
Each domestic utility operating subsidiary participates in retail rate proceedings on a consistent basis. The status of material retail rate proceedings is described in Note 2 to the domestic utility companies and System Energy financial statements. The domestic utility companies' retail rate mechanisms are discussed below.
Fuel Recovery
Entergy Arkansas' rate schedules include an energy cost recovery rider to recover fuel and purchased energy costs in monthly bills. The rider utilizes prior calendar year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over-recovery or under-recovery, including carrying charges, of the energy cost for the prior calendar year. Entergy Arkansas' 2005 filing is discussed in Note 2 to the domestic utility companies and System Energy financial statements.
In accordance with provisions in the energy cost recovery rider tariff for an interim rate request dependent upon the level of over- or under-recovery, Entergy Arkansas filed a request with the APSC for an interim rate increase in September 2005 which became effective with October 2005 billings.
Entergy Gulf States
Louisiana Jurisdiction - Formula Rate Plan
In March 2005, the LPSC approved a settlement that includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to Entergy Gulf States. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States. Entergy Gulf States made its first formula rate plan filing in June 2005 for the test year ending December 31, 2004 which is discussed in Note 2 to the domestic utility companies and Syste m Energy financial statements.
Louisiana Jurisdiction - Retail Base Rates
In June 2005, the LPSC approved a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan for gas with an ROE mid-point of 10.5%.
In January 2006, Entergy Gulf States filed with the LPSC its gas rate stabilization plan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. Approval by the LPSC and implementation is not expected until the second quarter of 2006.
Louisiana Jurisdiction - Fuel Recovery
Entergy Gulf States' Louisiana electric rates include a fuel adjustment clause designed to recover the cost of fuel and purchased power costs. The fuel adjustment clause contains a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers. The LPSC approved the deferral of $15.1 million and $11.5 million of fuel and purchased power costs for June 2005 and July 2005, respectively, to reduce the effect on customers of increasing natural gas prices.
Entergy Gulf States' Louisiana gas rates include a purchased gas adjustment clause based on estimated gas costs for the billing month adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers.
Louisiana Jurisdiction - Storm Cost Recovery
In December 2005, Entergy Gulf States filed with the LPSC for interim recovery of $141 million of storm costs. The filing proposes implementing an $18.7 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Gulf States recover $850,000 per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Gulf States' interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $6 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Gulf States of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment cla use in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $6 million cap is reached. Beginning in September 2006, Entergy Gulf States' interim storm cost recovery of $850,000 per month shall be through base rates. In addition, all excess earnings that Entergy Gulf States may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery.
Texas Jurisdiction - Retail Base Rates
Entergy Gulf States is operating in Texas under a base rate freeze that has remained in effect during the delay in the implementation of retail open access in Entergy Gulf States' Texas service territory. In June 2005, a Texas law was enacted that provides that Entergy Gulf States may not file a general base rate case in Texas before June 30, 2007, but may seek before then recovery of certain incremental purchased power capacity costs and may recover reasonable and necessary transition to competition costs. In July 2005, Entergy Gulf States filed with the PUCT a request for implementation of an incremental purchased capacity rider. An $18 million annual rider was made effective December 1, 2005 but is subject to reconciliation. Discussion of the recently passed Texas legislation is in Note 2 to the domestic utility companies and System Energy financial statements.
As authorized by the Texas legislation, in August 2005, Entergy Gulf States filed with the PUCT an application for recovery of its transition to competition costs. Entergy Gulf States requested recovery of $189 million in transition to competition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The $189 million represents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to be incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. Entergy Gulf States has reached a unanimous settlement agreement in principle on all issues with the active parties in the transition to competition cost recovery case. The agreement in principle allows Entergy Gulf States to r ecover $14.5 million per year in transition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006, subject to refund. Entergy Gulf States expects that the PUCT will consider the formal settlement document, which is currently being developed, in the second quarter 2006.
Texas Jurisdiction - Fuel Recovery
Entergy Gulf States' Texas rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including carrying charges, not recovered in base rates. Under the current methodology, semi-annual revisions of the fixed fuel factor may be made in March and September based on the market price of natural gas. Entergy Gulf States will likely continue to use this methodology until retail open access begins in Texas. To the extent actual costs vary from the fixed fuel factor, refunds or surcharges are required or permitted. The amounts collected under the fixed fuel factor through the start of retail open access are subject to fuel reconciliation proceedings before the PUCT. The PUCT fuel cost reviews that were resolved during the past year or are currently pending are discussed in Note 2 to the domestic utility companies and System Energy financial statements.
Entergy Louisiana
Formula Rate Plan
In May 2005, the LPSC approved a rate settlement that includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initial formula rate plan filing will be in May 2006 based on a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.
Fuel Recovery
Entergy Louisiana's rate schedules include a fuel adjustment clause designed to recover the cost of fuel and purchased power costs. The fuel adjustment clause contains a surcharge or credit for deferred fuel expense and related carrying charges arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers. The LPSC approved the deferral of $27.2 million of fuel and purchased power costs for May 2005 to reduce the effect on customers of increasing natural gas prices.
In September 2002, Entergy Louisiana settled a proceeding that concerned a contract entered into by Entergy Louisiana to purchase, through 2031, energy generated by a hydroelectric facility known as the Vidalia project. In the settlement, the LPSC approved Entergy Louisiana's proposed treatment of the regulatory impact of a tax accounting election related to that project. In general, the settlement permits Entergy Louisiana to keep a portion of the tax benefit in exchange for bearing the risk associated with sustaining the tax treatment. The LPSC settlement divided the term of the Vidalia contract into two segments: 2002-2012 and 2013-2031. During the first eight years of the 2002-2012 segment, Entergy Louisiana agreed to credit rates by flowing through its fuel adjustment calculation $11 million each year, beginning monthly in October 2002. Entergy Louisiana must credit rates in this way and by this amount even if Entergy Louisiana is unable to sustain the tax deduction. Entergy Louisiana also must credit rates by $11 million each year for an additional two years unless either the tax accounting method elected is retroactively repealed or the Internal Revenue Service denies the entire deduction related to the tax accounting method. Entergy Louisiana agreed to credit ratepayers additional amounts unless the tax accounting election is not sustained, if it is challenged. During the years 2013-2031, Entergy Louisiana and its ratepayers would share the remaining benefits of this tax accounting election. Note 8 to the domestic utility companies and System Energy financial statements contains further discussion of the obligations related to the Vidalia project.
Storm Cost Recovery
In December 2005, Entergy Louisiana filed with the LPSC for interim recovery of $355 million of storm costs. The filing proposes implementing a $41.8 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Louisiana recover $2 million per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Louisiana's interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $14 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Louisiana of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment clause in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $14 million cap is reached. Beginning in September 2006, Entergy Louisiana's interim storm cost recovery of $2 million per month shall be through base rates. In addition, all excess earnings that Entergy Louisiana may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery.
Entergy Mississippi
Performance-Based Formula Rate Plan
Entergy Mississippi is operating under a December 2002 MPSC order whereby Entergy Mississippi files a performance-based formula rate plan annually on or before March 15. The formula rate plan compares the prior year's annual earned rate of return to, and adjusts it against, a benchmark rate of return. The benchmark rate of return is calculated under a separate formula within the formula rate plan. The formula rate plan allows for periodic small prospective adjustments in rates, up to an amount that would produce a change in Entergy Mississippi's overall revenue of almost 2%, based on a comparison of actual earned returns to benchmark returns and upon certain performance factors. Entergy Mississippi made its annual formula rate plan filing with the MPSC in March 2005 based on a 2004 test year. In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provided for no change in rates based on a performance-adjusted ROE mid-point of 10.50%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.
Fuel Recovery
Entergy Mississippi's rate schedules include energy cost recovery riders to recover fuel and purchased energy costs. The rider utilizes projected energy costs filed quarterly by Entergy Mississippi to develop an energy cost rate. The energy cost rate is redetermined each calendar quarter and includes a true-up adjustment reflecting the over-recovery or under-recovery of the energy cost as of the second quarter preceding the redetermination.
In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 were deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges was refunded through the energy cost recovery rider in the second and third quarters of 2005.
Power Management Rider
The MPSC approved the purchase of the Attala power plant in November 2005. In December 2005, the MPSC issued an order approving the investment cost recovery through its power management rider and limited the recovery to a period that begins with the closing date of the purchase and ends the earlier of the date costs are incorporated into base rates or December 31, 2006. The MPSC order also provided that any reserve equalization benefits be credited to the annual ownership costs beginning with the date that Entergy Mississippi begins recovery of the Hurricane Katrina restoration costs or July 1, 2006, whichever is earlier. On December 9, 2005, Entergy Mississippi filed a compliance rider.
Storm Cost Recovery
In December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration cots associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. The notice proposes recovery of approximately $14.7 million annually over a five-year period, including carrying charges. A hearing on this matter is expected in April 2006. Entergy Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration costs associated with the hurricanes incurred after November 30, 2005.
Formula Rate Plans
In May 2003, the City Council approved the implementation of formula rate plans for electric and gas service that would be evaluated annually for two cycles of operation, unless extended by the City Council on or before September 1, 2005. Entergy New Orleans made its annual scheduled formula rate plan filing with the City Council in April 2005 which is discussed in Note 2 to the domestic utility companies and System Energy financial statements. In May 2005, Entergy New Orleans made a filing at the City Council seeking approval of the continued implementation of the gas and electric formula rate plans. The City Council approved an agreement in principle which provides, among other things, for the continuation of the electric and gas formula rate plans for two more annual cycles, effective September 1, 2005, with a target equity ratio of 45% (an increase from the original target of 42%) as well as a mid-point return on equity of 10.75%. The ROE band-width is 100 basis points from the mid-point for electric operations (allowed earnings range of 9.75% to 11.75%). For gas operations, the ROE band-width is 50 basis points from the mid-point (allowed earnings range of 10.25% to 11.25%) and zero basis points from the mid-point for the 2005 evaluation period. The electric and gas formula rate plans are scheduled to be filed no later than May 1, 2006.
The agreement in principle also called for the continuation and modification of Entergy New Orleans' Generation-Performance Based Rate (G-PBR) by separating the operation of the G-PBR from the formula rate plan so that the core business' electric rates are not set on a prospective basis by reference to G-PBR earnings. Under the revised G-PBR, the customer retains 100% of the first $20 million of additional savings, 90% of the next $30 million of additional savings (up to $50 million), 95% of the next $30 million of additional savings (up to $80 million), and 100% of additional savings over $80 million. The agreement in principle provides for a $4.5 million cap on Entergy New Orleans' share of G-PBR savings. The G-PBR plan, however, has been temporarily suspended effective with the September 2005 operational month due to impacts from Hurricane Katrina. Entergy New Orleans will notify the City Council's advisors and the City Council at such time as it is reasonable to resume the oper ation of the G-PBR.
Entergy New Orleans' electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges. The adjustment also includes the difference between non-fuel Grand Gulf costs paid by Entergy New Orleans and the estimate of such costs, which are included in base rates, as provided in Entergy New Orleans' Grand Gulf rate settlements. Entergy New Orleans' gas rate schedules include an adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges. In June and November 2004, the City Council passed resolutions implementing a package of measures deve loped by Entergy New Orleans and the Council Advisors to protect customers from potential gas price spikes during the 2004 - 2005 winter heating season. These measures included: maintaining Entergy New Orleans' financial hedging plan for its purchase of wholesale gas, and deferral of collection of up to $6.2 million of gas costs associated with a cap on the purchased gas adjustment in November and December 2004 in the event that the average residential customer's gas bill were to exceed a threshold level. The deferrals resulting from these caps were recovered over a seven-month period that began in April 2005.
In October 2005, the City Council approved modification of the current gas cost collection mechanism effective November 2005 in order to address concerns regarding its fluctuations particularly during the winter heating season. The modifications are intended to minimize fluctuations in gas rates during the winter months.
Franchises
Entergy Arkansas holds exclusive franchises to provide electric service in approximately 307 incorporated cities and towns in Arkansas. These franchises are unlimited in duration and continue unless the municipalities purchase the utility property. In Arkansas, franchises are considered to be contracts and, therefore, are terminable upon breach of the terms of the franchise.
In Louisiana, Entergy Gulf States holds non-exclusive franchises, permits, or certificates of convenience and necessity to provide electric service in approximately 55 incorporated municipalities and the unincorporated areas of approximately 19 parishes, and to provide gas service in the City of Baton Rouge and the unincorporated areas of two parishes. In Texas, Entergy Gulf States holds a certificate of convenience and necessity from the PUCT to provide electric service to areas within approximately 24 counties in eastern Texas, and holds non-exclusive franchises to provide electric service in approximately 65 incorporated municipalities. Entergy Gulf States typically is granted 50-year franchises in Texas. Most of Entergy Gulf States' Louisiana franchises have a term of 60 years. Entergy Gulf States' current electric franchises will expire during 2007 - 2045 in Texas and during 2015 - 2046 in Louisiana.
Entergy Louisiana holds non-exclusive franchises to provide electric service in approximately 116 incorporated Louisiana municipalities. Most of these franchises have 25-year terms. Entergy Louisiana also supplies electric service in approximately 353 unincorporated communities, all of which are located in the 46 Louisiana parishes in which it holds non-exclusive franchises.
Entergy Mississippi has received from the MPSC certificates of public convenience and necessity to provide electric service to areas within 45 counties, including a number of municipalities, in western Mississippi. Under Mississippi statutory law, such certificates are exclusive. Entergy Mississippi may continue to serve in such municipalities upon payment of a statutory franchise fee, regardless of whether an original municipal franchise is still in existence.
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to city ordinances (except electric service in Algiers, which is provided by Entergy Louisiana). These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties.
The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
Property and Other Generation Resources
Generating Stations
The total capability of the generating stations owned and leased by the domestic utility companies and System Energy as of December 31, 2005, is indicated below:
Owned and Leased Capability MW(1) |
||||||||||
Company |
Total |
Gas/Oil |
Nuclear |
Coal |
Hydro |
|||||
Entergy Arkansas |
4,704 |
1,601 |
1,843 |
1,190 |
70 |
|||||
Entergy Gulf States |
6,494 |
4,890 |
977 |
627 |
- |
|||||
Entergy Louisiana |
6,149 |
4,992 |
1,157 |
- |
- |
|||||
Entergy Mississippi |
2,883 |
2,467 |
- |
416 |
- |
|||||
Entergy New Orleans (2) |
876 |
876 |
- |
- |
- |
|||||
System Energy |
1,143 |
- |
1,143 |
- |
- |
|||||
Total |
22,249 |
14,826 |
5,120 |
2,233 |
70 |
(1) |
"Owned and Leased Capability" is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
(2) |
Entergy New Orleans' Gas/Oil generating capability sustained damage due to Hurricane Katrina and repairs are expected to be completed as needed to serve load. |
The Entergy System's load and capacity projections are reviewed periodically to assess the need and timing for additional generating capacity and interconnections. These reviews consider existing and projected demand, the availability and price of power, the location of new loads, and economy. Peak load in the U.S. Utility service territory is typically around 22,000 MW, with minimum load typically around 9,000 MW. Allowing for an adequate reserve margin, Entergy has been short approximately 3,000 MW during the summer peak load period. In addition to its net short position at summer peak, Entergy considers its generation in three categories: (1) baseload (e.g. coal, nuclear, or other solid fuel generation); (2) load-following (e.g. combined cycle gas-fired); and (3) peaking. The relative supply and demand for these categories of generation vary by region of the Entergy System. For example, the north end of the Entergy System has more baseload coal and nuclear generation than regi onal demand requires, but is short load-following or intermediate generation. In the south end of the Entergy System, load would be more effectively served if gas-fired intermediate resources already in place were supplemented with additional solid fuel baseload generation.
In the past, the Entergy System covered its short position at summer peak almost entirely with purchases from the spot market. In the fall of 2002, Entergy began a process of issuing requests for proposal (RFP) to procure supply-side resources from sources other than the spot market to meet the unique regional needs of the domestic utility companies. The first RFP sought resources to provide summer 2003 and longer-term resources through a broad range of wholesale power products, including short-term (less than one year), limited-term (1 to 3 years), and long-term contractual products and asset acquisitions. A detailed process that included the involvement of an independent monitor was developed to evaluate submitted bids. The following table illustrates the results of the RFP process for short-term, limited-term, and long-term resources acquired since the Fall 2002 RFP. All of the contracts which were awarded through this process and signed were with non-affiliates, with the excep tion of the contract covering 185 MW to 206 MW from RS Cogen.
|
|
|
Limited-term 3rd party |
|
|
|
Fall 2002 |
0 MW |
185-206 MW (a) |
231 MW |
101-121 MW (b) |
718 MW |
1,235-1,276 MW |
January 2003 |
|
|
|
|
|
|
Spring 2003 |
n/a |
0 MW |
381 MW |
(c) |
0 MW |
381 MW |
Fall 2003 |
n/a |
0 MW |
390 MW |
n/a |
n/a |
390 MW |
Fall 2004 |
n/a |
n/a |
1,250 MW |
n/a |
n/a |
1,250 MW |
Total |
222 MW |
185-206 MW |
2,252 MW |
101-121 MW |
718 MW |
3,478 - 3,519 MW |
(a) |
Includes a conditional option to increase the capacity up to the upper bound of the range. |
(b) |
The contracted capacity will increase from 101 MW to 121 MW in 2010. |
(c) | This table does not reflect (i) the River Bend 30% life-of-unit power purchase agreements totaling approximately 300 MW between Entergy Gulf States and Entergy Louisiana, and between Entergy Gulf States and Entergy New Orleans related to Entergy Gulf States' unregulated portion of the River Bend nuclear station, which portion was formerly owned by Cajun Electric Power Cooperative, Inc. or (ii) the Entergy Arkansas wholesale base load capacity life-of-unit power purchase agreements totaling approximately 220 MW between Entergy Arkansas and Entergy Louisiana and between Entergy Arkansas and Entergy New Orleans related to the sale of a portion of Entergy Arkansas' coal and nuclear base load resources (which were not included in retail rates) to Entergy Louisiana and Entergy New Orleans executed in 2003; or (iii) the 12 month agreements between Entergy Arkansas and Entergy Gulf States and between Entergy Arkansas and Entergy Mississippi relating to the sale of a portion of Entergy Arkansas' coal and nuclear base load resources (which were not included in retail rates) to Entergy Gulf States and Entergy Mississippi executed in 2005, which agreements currently are pending for approval by the FERC. These resources were identified outside of the formal RFP process but were submitted as formal proposals in response to the Spring 2003 RFP, which confirmed the economic merits of these resources. |
The purchase of the Perryville plant was completed during June 2005 for approximately $162.5 million. Entergy Louisiana owns 100% of the 718 MW plant and will retain 25% of the output for Entergy Louisiana customers, selling 75% to Entergy Gulf States under Service Schedule MSS-4 of the Entergy System Agreement.
In addition, Entergy Gulf States entered into a 485 MW contract for capacity and energy from Calpine Energy Services, L.P.'s and Carville Energy Center, LLC's Carville Energy Center. This contract, which has a one-year delivery term beginning in July 2005, was the result of bilateral negotiations conducted at the direction of the LPSC. Also, Entergy Louisiana entered into a 179 MW contract for capacity and energy from Occidental Chemical Corporation's Taft Cogeneration Facility, which was also the result of bilateral negotiations conducted at the direction of the LPSC. This contract has a three-year delivery term beginning in July 2005.
Entergy Mississippi entered into an agreement in March 2005 to acquire the Attala generating facilities from Central Mississippi Generating Company (CMG) for $88 million. Attala is a gas-fired power generating facility located near Kosciusko, Mississippi with nominal capacity of 480 MW. Entergy Mississippi closed on the purchase of the plant in January 2006.
In addition to the resources already identified, the Entergy System preferentially allocated to Entergy Gulf States and Entergy Louisiana 800 MW of annual block energy purchases as a part of its Summer 2005 resource plan. Block energy products help the Entergy System and the domestic utility companies meet several of the objectives outlined in its planning principles. Block purchases allow the companies to meet their need for baseload resources, while matching resources with demand and helping to provide price stability. In addition, block energy purchases also provide a means by which individual operating companies can move their total production costs closer to the Entergy System average.
As part of the ongoing needs assessment and RFP process mentioned above, Entergy Services issued an RFP for long-term resources in January 2006. Entergy Services currently intends to seek to acquire up to approximately 1,000 MW of long-term solid fuel resources and up to approximately 1,000 MW of long-term CCGT resources through economically and operationally attractive proposals in the 2006 long-term RFP. It currently is anticipated that the long-term resources will include life-of-unit proposals for existing facilities and projects that may be developed or completed in the future. Entergy Services identified a self-build option to be located at Entergy Louisiana's Little Gypsy facility in this RFP, and Entergy competitive affiliates are also allowed to submit proposals.
In addition to the purchases from non-affiliates shown above, Entergy Arkansas, Entergy Gulf States in Louisiana, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans made filings with their respective retail regulators seeking approval to enter into transactions with affiliates as shown in the following table:
Company |
|
Proposed Transactions |
|
Status of Approval in |
|
|
|
|
|
Entergy Arkansas |
|
|
|
In May 2003, the APSC found the PPAs in 1) involving Entergy Arkansas to be in the public interest. FERC approved the PPAs in 2) which went into effect in February 2006. |
|
|
|
|
|
Entergy Gulf States |
|
|
|
The LPSC and FERC approved the PPA with Entergy Arkansas. The PPA went into effect in February 2006. |
|
|
|
|
|
Entergy Louisiana |
|
|
|
The LPSC found contracts 1) and 2) to be prudent and authorized Entergy Louisiana to execute these contracts. In December 2005, the LPSC approved the life-of-unit PPAs for proposals 3) and 4). Entergy Louisiana is seeking clarification for the pricing of one of the resources included in contract 4). The outcome of the life-of-resources PPAs is still pending FERC approval, although the FERC ALJ issued a decision generally recommending that the contracts be approved. |
|
|
|
|
|
Entergy Mississippi |
|
|
|
The MPSC and the FERC approved the PPA with Entergy Arkansas. The PPA went into effect in February 2006. |
|
|
|
|
|
Entergy New Orleans |
|
|
|
In May 2003, in connection with a settlement relating to Entergy New Orleans' cost-of-service study and revenue requirement, the City Council authorized Entergy New Orleans to enter into contracts for the proposed transactions described in 1) through 4). |
Entergy also filed with the FERC the affiliate agreements described above. For the agreements other than the PPAs between Entergy Arkansas and Entergy Gulf States and Entergy Mississippi, in May 2003, the FERC accepted the agreements for filing, subject to refund, with the contracts becoming effective on June 1, 2003. The FERC also established a hearing process to review the justness and reasonableness of the agreements. Several parties intervened or filed protests regarding the request-for-proposals process and the agreements filed with the FERC. After hearings were held, the FERC ALJ issued an initial decision generally recommending approval of the PPAs. The matter is still pending before the FERC.
Interconnections
The Entergy System's generating units are interconnected by a transmission system operating at various voltages up to 500 kV. These generating units consist primarily of steam-electric production facilities and are centrally dispatched and operated. Entergy's domestic utility companies are interconnected with many neighboring utilities. In addition, the domestic utility companies are members of the Southeastern Electric Reliability Council (SERC). The primary purpose of SERC is to ensure the reliability and adequacy of the electric bulk power supply in the southeast region of the United States. SERC is a member of the North American Electric Reliability Council.
Gas Property
As of December 31, 2005, Entergy New Orleans distributed and transported natural gas for distribution solely within New Orleans, Louisiana, through a total of 33 miles of gas transmission pipeline, 1,498 miles of gas distribution pipeline, and 1,027 miles of gas service pipeline from the distribution mains to the customers. As of December 31, 2005, the gas properties of Entergy Gulf States, which are located in and around Baton Rouge, Louisiana, were not material to Entergy Gulf States' financial position.
Titles
Entergy's generating stations are generally located on properties owned in fee simple. Most of the substations and transmission and distribution lines are constructed on private property or public rights-of-way pursuant to easements, servitudes, or appropriate franchises. Some substation properties are owned in fee simple. The domestic utility companies generally have the right of eminent domain, whereby they may perfect title to, or secure easements or servitudes on, private property for their utility operations.
Substantially all of the physical properties and assets owned by Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are subject to the liens of mortgages securing the mortgage bonds of such company. The Lewis Creek generating station is owned by GSG&T, Inc., a subsidiary of Entergy Gulf States, and is not subject to the lien of the Entergy Gulf States mortgage securing its first mortgage bonds. Lewis Creek is leased to and operated by Entergy Gulf States.
Fuel Supply
The sources of generation and average fuel cost per kWh for the domestic utility companies and System Energy for the years 2003-2005 were:
|
|
|
|
Purchased |
||||||||||||||||
|
% |
Cents |
% |
Cents |
% |
Cents |
% |
Cents |
% |
Cents |
||||||||||
2005 |
18 |
9.81 |
3 |
7.09 |
33 |
.49 |
12 |
1.57 |
34 |
6.33 |
||||||||||
2004 |
15 |
7.31 |
4 |
5.02 |
35 |
.49 |
13 |
1.39 |
33 |
4.51 |
||||||||||
2003 |
17 |
6.53 |
2 |
5.04 |
35 |
.48 |
12 |
1.26 |
34 |
4.24 |
Actual 2005 and projected 2006 sources of generation for the domestic utility companies and System Energy, including certain power purchases from affiliates under life of unit power purchase agreements, are:
|
|
|
|
Purchased |
|||||||||||||||
2005 |
2006 |
2005 |
2006 |
2005 |
2006 |
2005 |
2006 |
2005 |
2006 |
||||||||||
Entergy |
|
|
|
|
|
|
|
|
|
|
|||||||||
Entergy |
|
|
|
|
|
|
|
|
|
|
|||||||||
Entergy |
|
|
|
|
|
|
|
|
|
|
|||||||||
Entergy |
|
|
|
|
|
|
|
|
|
|
|||||||||
Entergy |
|
|
|
|
|
|
|
|
|
|
|||||||||
System Energy |
- |
- |
- |
- |
100%(b) |
100%(b) |
- |
- |
- |
- |
|||||||||
U.S. Utility (a) |
18% |
15% |
3% |
3% |
33% |
36% |
12% |
12% |
34% |
34% |
(a) |
Hydroelectric power provided less than 1% of Entergy Arkansas' generation in 2005 and is expected to provide approximately 1% of its generation in 2006. |
(b) |
Capacity and energy from System Energy's interest in Grand Gulf was historically allocated as follows: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans - 17%. Pursuant to purchased power agreements, some that are the subject of a pending proceeding at the FERC, Entergy Arkansas is selling a portion of its owned capacity and energy from Grand Gulf to Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. |
Natural Gas
The domestic utility companies have long-term firm and short-term interruptible gas contracts. Long-term firm contracts for power plants comprise less than 15% of the domestic utility companies' total requirements but can be called upon, if necessary, to satisfy a significant percentage of the utility companies' needs. Short-term contracts and spot-market purchases satisfy additional gas requirements. Entergy Gulf States owns a gas storage facility that provides reliable and flexible natural gas service to certain generating stations.
Entergy Louisiana has a long-term natural gas supply contract, which expires in 2012, in which Entergy Louisiana agreed to purchase natural gas in annual amounts equal to approximately one-third of its projected annual fuel requirements for certain generating units. Annual demand charges associated with this contract are estimated to be $7.2 million. Such charges aggregate $50 million for the years 2006 through 2012.
Many factors, including wellhead deliverability, storage and pipeline capacity, and demand requirements of end users, influence the availability and price of natural gas supplies for power plants. Demand is tied to weather conditions as well as to the prices of other energy sources. Natural gas supplies were significantly disrupted in 2005 due to Hurricanes Katrina and Rita (at one point up to 70% of the normal level of Gulf of Mexico production was unavailable), and disruptions are expected to continue into 2006. Nevertheless, Entergy's supplies of natural gas are expected to be adequate in 2006. However, pursuant to federal and state regulations, gas supplies to power plants may be interrupted during periods of shortage. To the extent natural gas supplies are disrupted or natural gas prices significantly increase, the domestic utility companies will use alternate fuels, such as oil, or rely to a larger extent on coal, nuclear generation, and purchased power.
Coal
Entergy Arkansas has a long-term contract for low-sulfur Powder River Basin (PRB) coal which expires in 2011, and is expected to provide for approximately 90% of Independence's expected coal requirements for 2006. Entergy Arkansas has entered into three medium term (three-year) contracts for approximately 67% of White Bluff's coal supply needs. These contracts are staggered in term so that one is renewed every year. Entergy Arkansas has an additional 16% of its 2006 coal requirement committed in a one-year contract. Additional coal requirements for both Independence and White Bluff are satisfied by spot market or over-the-counter purchases. Entergy Arkansas has a long-term railroad transportation contract for the delivery of coal to both White Bluff and Independence that expires in 2011. A second carrier currently delivers a portion of White Bluff's coal requirements under a long-term transportation agreement that expires on December 31, 2006.
Entergy Gulf States has a long-term contract for the supply of low-sulfur PRB coal for Nelson Unit 6. This contract will expire during the summer of 2007. Entergy Gulf States has executed two transportation requirements contracts with railroads to deliver coal to Nelson Unit 6 through 2007. The operator of Big Cajun 2, Unit 3, Louisiana Generating, LLC, has advised Entergy Gulf States that it has coal supply and transportation contracts that should provide an adequate supply of coal for the operation of Big Cajun 2, Unit 3 for the foreseeable future.
Both the Entergy Arkansas and Entergy Gulf States coal plants were originally designed for and have exclusively burned low-sulfur coal. While both Entergy Arkansas and Entergy Gulf States have adequately arranged for the supply of low-sulfur PRB coal, the railroads servicing these coal plants are currently not performing at expected levels due to various issues including but not limited to capacity constraints across their systems. As a result of these railroad issues, Entergy Arkansas and Entergy Gulf States may not be able to deliver all the low-sulfur PRB coal required for maximum plant utilization by means of the existing agreements. Entergy Arkansas and Entergy Gulf States plan to test alternative coals in addition to low-sulfur PRB coal in an effort to increase delivery options and to cover portions of the potential shortfall in low-sulfur PRB coal deliveries.
Nuclear Fuel
The nuclear fuel cycle consists of the following:
System Fuels, a company owned by Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, is responsible for contracts to acquire nuclear material to be used in fueling Entergy's utility nuclear units, except for River Bend. System Fuels also maintains inventories of such materials during the various stages of processing. The domestic utility companies purchase enriched uranium hexafluoride from System Fuels, but contract separately for the fabrication of their own nuclear fuel. The requirements for River Bend are met pursuant to contracts made by Entergy Gulf States.
Based upon currently planned fuel cycles, Entergy's nuclear units have contracts and inventory that provide adequate materials and services. Existing contracts for uranium concentrate, conversion of the concentrate to uranium hexafluoride, and enrichment of the uranium hexafluoride will provide a significant percentage of these materials and services over the next several years. Uranium market supply became much tighter in recent years. Costs and risks of obtaining supplies have increased for nuclear fuel users. It will be necessary for Entergy to enter into additional arrangements to acquire nuclear fuel in the future. It is not possible to predict the ultimate cost or availability of such arrangements.
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy each have made arrangements to lease nuclear fuel and related equipment and services. The lessors finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These arrangements are subject to periodic renewal. See Note 9 to the domestic utility companies and System Energy financial statements for a discussion of nuclear fuel leases.
Natural Gas Purchased for Resale
Entergy New Orleans has several suppliers of natural gas. Its system is interconnected with three interstate and three intrastate pipelines. Entergy New Orleans' primary suppliers currently are Atmos Energy and Bridgeline Gas Marketing. Entergy New Orleans has a "no-notice" service gas purchase contract with Atmos Energy which guarantees Entergy New Orleans gas delivery at specific delivery points and at any volume within the minimum and maximum set forth in the contract amounts. The Atmos Energy gas supply is transported to Entergy New Orleans pursuant to a transportation service agreement with Gulf South Pipeline Co. This service is subject to FERC-approved rates. Entergy New Orleans has firm contracts with its two intrastate suppliers and also makes interruptible spot market purchases. In recent years, natural gas deliveries to Entergy New Orleans have been subject primarily to weather-related curtailments. However, Entergy New Orleans experienced no such curtailments in 2005.
As a result of the implementation of FERC-mandated interstate pipeline restructuring in 1993, curtailments of interstate gas supply could occur if Entergy New Orleans' suppliers failed to perform their obligations to deliver gas under their supply agreements. Gulf South Pipeline Co. could curtail transportation capacity only in the event of pipeline system constraints. Because of the impact of Hurricanes Katrina and Rita on natural gas supply as well as other factors, Entergy New Orleans may have additional difficulty in sourcing natural gas.
Entergy Gulf States purchases natural gas for resale under a firm contract from Enbridge Marketing (U.S.) Inc. (formerly Mid Louisiana Gas Company) entered into September 2002 for a five-year period. The contract will continue annually at the end of the term unless prior notice is given by Entergy Gulf States.
Federal Regulation
State or local regulatory authorities, as described above, regulate the retail rates of Entergy's domestic utility companies. FERC regulates wholesale rates (including intrasystem sales pursuant to the System Agreement) and interstate transmission of electricity, as well as rates for System Energy's sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement.
System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which is a rate schedule that has been approved by the FERC. Under the terms of the System Agreement, generating capacity and other power resources are jointly operated by the domestic utility companies. The System Agreement provides, among other things, that parties having generating reserves greater than their load requirements (long companies) shall receive payments from those parties having deficiencies in generating reserves (short companies). Such payments are at amounts sufficient to cover certain of the long companies' costs for intermediate and peaking oil/gas-fired generation, including operating expenses, fixed charges on debt, dividend requirements on preferred stock, and a fair rate of return on common equity investment. Under the System Agreement, these charges are based on costs associated with the long companies' steam electric generating units fueled by oil or gas and having an annual average heat rate above 10,000 Btu/kWh. In addition, for all energy exchanged among the domestic utility companies under the System Agreement, the companies purchasing exchange energy are required to pay the cost of fuel consumed in generating such energy plus a charge to cover other associated costs.
See "System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the proceeding at FERC involving the System Agreement and of other related proceedings.
Transmission
See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis.
Market-based Rate Authority
See "Market-based Rate Authority" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis.
Interconnection Orders
See "Interconnection Orders" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis.
Available Flowgate Capacity Proceeding
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis.
FERC Audits
In August 2002, the FERC initiated audits and reviews of Entergy's compliance with Order Nos. 888 and 889 and Entergy's open access transmission tariff. In March 2004, a separate audit was started concerning Entergy's administration of the Generator Operating Limits (GOL) processes. Entergy responded to numerous FERC data requests and the FERC Staff members interviewed several employees. In December 2004, the FERC issued the GOL audit report in which it identified certain input and modeling errors in the implementation of the GOL process (which process was replaced in April 2004 with the available flowgate capacity process). The report recommends that Entergy implement additional quality control and assurance procedures surrounding the processes for granting short-term transmission service. Separately, the FERC investigation staff has provided to Entergy its preliminary findings in a non-public draft report identifying certain areas of concern related to Entergy's compliance with prov isions of its open access transmission tariff. Entergy has submitted a comprehensive response and rebuttal to the specific concerns identified by the investigation staff but, at this point, believes that it has complied with the provisions of its open access transmission tariff. The draft report is not a final report and may be modified by the FERC staff based on Entergy's responses or otherwise. In addition, Entergy has the ability to appeal the final reports to the full FERC.
The FERC is currently reviewing certain wholesale sales and purchases involving EPMC that occurred during the 1998-2001 time period. EPMC was an Entergy subsidiary engaged in non-regulated wholesale marketing and trading activities prior to the formation of Entergy-Koch. Entergy is working with the FERC investigation staff to provide information regarding these transactions.
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for a discussion concerning the potential loss of certain available flowgate capacity data. Following Entergy's notice to the FERC of the potential loss of certain available flowgate capacity data, the FERC investigation staff initiated a non-public investigation of the domestic utility companies' compliance with the FERC's record retention requirements. Entergy is providing information to the FERC staff concerning its record retention policies and practices. Additionally, Entergy recently notified the FERC investigation staff of a failure to timely post to Entergy's OASIS site certain curtailment and schedule information. A separate, non-public investigation was initiated to review this issue and Entergy is working with the FERC staff to respond to their questions.
Other Customer-Initiated Proceedings at FERC
In September 2004, East Texas Electric Cooperative (ETEC), filed a complaint at the FERC against Entergy Arkansas relating to a contract dispute over the pricing of substitute energy at the Independence co-owned coal unit. In October 2004 Arkansas Electric Cooperative (AECC) filed a similar complaint at the FERC against Entergy Arkansas, addressing the same issue with respect to Independence and another co-owned coal unit, White Bluff Electric Station. Entergy Arkansas filed answers to these complaints in October 2004 and November 2004. FERC consolidated the cases, ordered a hearing in the consolidated proceeding, and established refund effective dates. The main issue in the case relates to the consequences under the governing contracts when the dispatch of the coal units is constrained due to system operating conditions. On August 24, 2005, Entergy Arkansas and ETEC filed a settlement at FERC that resolved all issues in dispute between ETEC and Entergy Arkansas. As part of the settl ement, ETEC filed to dismiss its complaint. Entergy Arkansas believes that the AECC contracts in dispute recognize the effects of dispatch constraints on the co-owned units and require all of the co-owners, including AECC, to bear the burden of the reduced output. A FERC ALJ issued an Initial Decision in January 2006 denying AECC's complaint.
On February 17, 2005, ExxonMobil Chemical Company and ExxonMobil Refining & Supply Company (ExxonMobil) filed a complaint with FERC against Entergy Services and the domestic utility companies. The complaint alleges that the Entergy defendants have violated Entergy's open access transmission tariff, as well as its interconnection and operating agreement with ExxonMobil, by not allowing ExxonMobil to net its station power needs at its industrial complex in Baton Rouge, Louisiana. ExxonMobil also alleges that the Entergy defendants have been charging rates that are not on file with the FERC and that the Entergy defendants' monthly facilities charge is contrary to the FERC's current interconnection pricing policy. ExxonMobil states that such violations have resulted in monetary losses to it in excess of $5 million. Entergy believes that it has complied with the provisions of its open access transmission tariff and the provisions of the interconnection and operating agreement. On April 18, 2005, the FERC (1) rejected as unfounded ExxonMobil's allegation concerning the netting of its station power needs; and (2) set for hearing the question of whether the facility upgrades and related charges are subject to FERC jurisdiction and, if so, when they became subject to FERC jurisdiction, whether the monthly facility charge violated FERC pricing policy, and whether any refunds are appropriate. The FERC then held the hearing in abeyance in order to provide the parties an opportunity to settle their dispute before hearing procedures commence. Settlement discussions with the assistance of a FERC Settlement Judge are underway.
On January 24, 2005 Cottonwood Energy Company, L.P., an independent generator, filed with the FERC a rate schedule for reactive power that proposes to impose on Entergy Gulf States a rate for reactive supply service allegedly supplied by Cottonwood's electric generating facility. Cottonwood has proposed a fixed monthly charge ($3.4 million annually), which according to Cottonwood represents its revenue requirement for reactive power service. Entergy believes that independent generators should only be compensated for reactive power to the extent that they have an affirmative and continual obligation to provide reactive power support beyond their power factor range when directed to do so by the transmission provider, and is opposing Cottonwood's rate schedule. On March 23, 2005, the FERC accepted Cottonwood's proposed reactive power rate schedule for filing effective on February 1, 2005, subject to refund, and established hearing and settlement judge procedures. A hearing in this proceed ing originally scheduled for January 2006 has been held in abeyance, pending settlement discussions. A similar filing was made by Union Power Partners in May 2005 requesting $4.15 million annually. On July 15, 2005, the FERC accepted Union Power Partners' proposed reactive power rate schedule for filing, effective May 18, 2005, subject to refund and established hearing and settlement judge procedures.
During August and September 2005, three additional generators filed similar requests seeking to charge the domestic utility companies' customers a total of approximately $8 million. On September 2, 2005, the domestic utility companies filed a Petition for Declaratory Order with the FERC seeking confirmation that if the domestic utility companies do not seek compensation from wholesale transmission customers for reactive power service provided by their owned generating facilities, then the domestic utility companies are not required to compensate non-affiliated generators for maintaining reactive power within specified limits. Concurrent with their Petition for Declaratory Order, the domestic utility companies filed modifications to their transmission tariff proposing to eliminate any charge for reactive power supplied by the domestic utility companies' owned units. On October 14, 2005, the FERC issued an order granting Entergy's Petition for Declaratory Order and accepting the proposed changes to the transmission tariff, effective November 1, 2005. Accordingly, following November 1, 2005, the domestic utility companies' customers should not be required to compensate third party generators for reactive power supplied within the specified limits. The FERC accepted the three additional generators' proposed rate schedules for filing but noted that the proposed rate schedules would no longer be effective after October 31, 2005, consistent with its ruling on the Petition for Declaratory Order. On November 1, 2005, the domestic utility companies filed two complaints with the FERC requesting that the FERC issue similar orders prohibiting Cottonwood and Union Power Partners from charging for reactive power supplied within the specified limits after October 31, 2005.
Entergy and Union Power Partners have filed with the FERC a proposed settlement for reactive power charges for the period May 18, 2005 through October 31, 2005. Entergy is currently engaged in settlement discussions with the other four generators.
System Energy and Related Agreements
System Energy recovers costs related to its interest in Grand Gulf through rates charged to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans for capacity and energy under the Unit Power Sales Agreement (described below). In December 1995, System Energy commenced a rate proceeding at the FERC. In July 2001, the rate proceeding became final, with the FERC approving a prospective 10.94% return on equity. The FERC's decision also affected other aspects of System Energy's charges to the domestic utility companies that it supplies with power. In 1998, the FERC approved requests by Entergy Arkansas and Entergy Mississippi to accelerate a portion of their Grand Gulf purchased power obligations. Entergy Arkansas' and Entergy Mississippi's acceleration of Grand Gulf purchased power obligations ceased effective July 2001 and July 2003, respectively, as approved by FERC.
Unit Power Sales Agreement
The Unit Power Sales Agreement allocates capacity, energy, and the related costs from System Energy's 90% ownership and leasehold interests in Grand Gulf to Entergy Arkansas (36%), Entergy Louisiana (14%), Entergy Mississippi (33%), and Entergy New Orleans (17%). Each of these companies is obligated to make payments to System Energy for its entitlement of capacity and energy on a full cost-of-service basis regardless of the quantity of energy delivered, so long as Grand Gulf remains in commercial operation. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenue. The financial condition of System Energy depends upon the continued commercial operation of Grand Gulf and the receipt of such payments. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans generally recover payments made under the Unit Power Sales Agreement through rates charged to their customers.
In the case of Entergy Arkansas and Entergy Louisiana, payments are also recovered through sales of electricity from their respective retained shares of Grand Gulf. Under a settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas retains 22% of its 36% share of Grand Gulf-related costs and recovers the remaining 78% of its share in rates. In the event that Entergy Arkansas is not able to sell its retained share to third parties, it may sell such energy to its retail customers at a price equal to its avoided cost, which is currently less than Entergy Arkansas' cost from its retained share. Entergy Arkansas has life-of-resources purchased power agreements with Entergy Louisiana and Entergy New Orleans pending regulatory approvals that sell a portion of the output of Entergy Arkansas' retained share of Grand Gulf to those companies. In a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Entergy Louisiana's share of capacity and energy from Grand Gulf, subject to certain terms and conditions. Entergy Louisiana retains and does not recover from retail ratepayers 18% of its 14% share of the costs of Grand Gulf capacity and energy and recovers the remaining 82% of its share in rates. Entergy Louisiana is allowed to recover through the fuel adjustment clause 4.6 cents per kWh for the energy related to its retained portion of these costs. Alternatively, Entergy Louisiana may sell such energy to non-affiliated parties at prices above the fuel adjustment clause recovery amount, subject to the LPSC's approval.
Availability Agreement
The Availability Agreement among System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans was entered into in 1974 in connection with the financing by System Energy of Grand Gulf. The Availability Agreement provides that System Energy make available to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans all capacity and energy available from System Energy's share of Grand Gulf.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans also agreed severally to pay System Energy monthly for the right to receive capacity and energy from Grand Gulf in amounts that (when added to any amounts received by System Energy under the Unit Power Sales Agreement) would at least equal System Energy's total operating expenses for Grand Gulf (including depreciation at a specified rate) and interest charges. The September 1989 write-off of System Energy's investment in Grand Gulf 2, amounting to approximately $900 million, is being amortized for Availability Agreement purposes over 27 years.
The allocation percentages under the Availability Agreement are fixed as follows: Entergy Arkansas - 17.1%; Entergy Louisiana - 26.9%; Entergy Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation percentages under the Availability Agreement would remain in effect and would govern payments made under such agreement in the event of a shortfall of funds available to System Energy from other sources, including payments under the Unit Power Sales Agreement.
System Energy has assigned its rights to payments and advances from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under the Availability Agreement as security for its first mortgage bonds and reimbursement obligations to certain banks providing letters of credit in connection with the equity funding of the sale and leaseback transactions described in Note 9 to the financial statements under "Sale and Leaseback Transactions - Grand Gulf Lease Obligations." In these assignments, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans further agreed that, in the event they were prohibited by governmental action from making payments under the Availability Agreement (for example, if FERC reduced or disallowed such payments as constituting excessive rates), they would then make subordinated advances to System Energy in the same amounts and at the same times as the prohibited payments. System Energy would not be allow ed to repay these subordinated advances so long as it remained in default under the related indebtedness or in other similar circumstances.
Each of the assignment agreements relating to the Availability Agreement provides that Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans will make payments directly to System Energy. However, if there is an event of default, those payments must be made directly to the holders of indebtedness that are the beneficiaries of such assignment agreements. The payments must be made pro rata according to the amount of the respective obligations secured.
The obligations of Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans to make payments under the Availability Agreement are subject to the receipt and continued effectiveness of all necessary regulatory approvals. Sales of capacity and energy under the Availability Agreement would require that the Availability Agreement be submitted to FERC for approval with respect to the terms of such sale. No such filing with FERC has been made because sales of capacity and energy from Grand Gulf are being made pursuant to the Unit Power Sales Agreement. If, for any reason, sales of capacity and energy are made in the future pursuant to the Availability Agreement, the jurisdictional portions of the Availability Agreement would be submitted to FERC for approval.
Since commercial operation of Grand Gulf began, payments under the Unit Power Sales Agreement to System Energy have exceeded the amounts payable under the Availability Agreement. Therefore, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments because their Availability Agreement obligations exceed their Unit Power Sales Agreement obligations.
The Availability Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, without further consent of any assignees or other creditors.
Capital Funds Agreement
System Energy and Entergy Corporation have entered into the Capital Funds Agreement, whereby Entergy Corporation has agreed to supply System Energy with sufficient capital to (i) maintain System Energy's equity capital at an amount equal to a minimum of 35% of its total capitalization (excluding short-term debt) and (ii) permit the continued commercial operation of Grand Gulf and pay in full all indebtedness for borrowed money of System Energy when due.
Entergy Corporation has entered into various supplements to the Capital Funds Agreement. System Energy has assigned its rights under such supplements as security for its first mortgage bonds and for reimbursement obligations to certain banks providing letters of credit in connection with the equity funding of the sale and leaseback transactions described in Note 9 to the consolidated financial statements under "Sale and Leaseback Transactions - Grand Gulf Lease Obligations." Each such supplement provides that permitted indebtedness for borrowed money incurred by System Energy in connection with the financing of Grand Gulf may be secured by System Energy's rights under the Capital Funds Agreement on a pro rata basis (except for the Specific Payments, as defined below). In addition, in the supplements to the Capital Funds Agreement relating to the specific indebtedness being secured, Entergy Corporation has agreed to make cash capital contributions directly to System Energ y sufficient to enable System Energy to make payments when due on such indebtedness (Specific Payments). However, if there is an event of default, Entergy Corporation must make those payments directly to the holders of indebtedness benefiting from the supplemental agreements. The payments (other than the Specific Payments) must be made pro rata according to the amount of the respective obligations benefiting from the supplemental agreements.
The Capital Funds Agreement may be terminated, amended, or modified by mutual agreement of the parties thereto, upon obtaining the consent, if required, of those holders of System Energy's indebtedness then outstanding who have received the assignments of the Capital Funds Agreement.
Service Companies
Entergy Services, a corporation wholly-owned by Entergy Corporation, provides management, administrative, accounting, legal, engineering, and other services primarily to the domestic utility companies. Entergy Operations is also wholly-owned by Entergy Corporation and provides nuclear management, operations and maintenance services under contract for ANO, River Bend, Waterford 3, and Grand Gulf, subject to the owner oversight of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy, respectively. Entergy Services and Entergy Operations provide their services to the domestic utility companies and System Energy on an "at cost" basis, pursuant to service agreements that were approved by the SEC under PUHCA 1935.
Earnings Ratios of Domestic Utility Companies and System Energy
The domestic utility companies' and System Energy's ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of SEC Regulation S-K are as follows:
Ratios of Earnings to Fixed Charges |
||||||||||
2005 |
2004 |
2003 |
2002 |
2001 |
||||||
Entergy Arkansas |
3.75 |
3.37 |
3.17 |
2.79 |
3.29 |
|||||
Entergy Gulf States |
3.34 |
3.04 |
1.51 |
2.49 |
2.36 |
|||||
Entergy Louisiana Holdings |
3.50 |
3.60 |
3.93 |
3.14 |
2.76 |
|||||
Entergy Louisiana, LLC |
3.50 |
3.60 |
3.93 |
3.14 |
2.76 |
|||||
Entergy Mississippi |
3.16 |
3.41 |
3.06 |
2.48 |
2.14 |
|||||
Entergy New Orleans |
1.22 |
3.60 |
1.73 |
(a) |
(b) |
|||||
System Energy |
3.85 |
3.95 |
3.66 |
3.25 |
2.12 |
Ratios of Earnings to Combined Fixed |
||||||||||
2005 |
2004 |
2003 |
2002 |
2001 |
||||||
Entergy Arkansas |
3.34 |
2.98 |
2.79 |
2.53 |
2.99 |
|||||
Entergy Gulf States |
3.18 |
2.90 |
1.45 |
2.40 |
2.21 |
|||||
Entergy Louisiana Holdings |
3.09 |
3.16 |
3.46 |
2.86 |
2.51 |
|||||
Entergy Mississippi |
2.83 |
3.07 |
2.77 |
2.27 |
1.96 |
|||||
Entergy New Orleans |
1.12 |
3.31 |
1.59 |
(a) |
(b) |
(a) |
For Entergy New Orleans, earnings for the twelve months ended December 31, 2002 were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $0.7 million and $3.4 million, respectively. |
(b) |
For Entergy New Orleans, earnings for the twelve months ended December 31, 2001 were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively. |
Non-Utility Nuclear
Entergy's Non-Utility Nuclear business owns and operates five nuclear power plants and is primarily focused on selling electric power produced by those plants to wholesale customers. This business also provides operations and management services to nuclear power plants owned by other utilities in the United States. Operations and management services, including decommissioning services, are provided through Entergy's wholly-owned subsidiary, Entergy Nuclear, Inc.
Property
Generating Stations
Entergy's Non-Utility Nuclear business owns the following nuclear power plants:
|
|
|
|
|
License |
|||||
Pilgrim |
July 1999 |
Plymouth, MA |
688 MW |
Boiling Water Reactor |
2012 |
|||||
FitzPatrick |
Nov. 2000 |
Oswego, NY |
838 MW |
Boiling Water Reactor |
2014 |
|||||
Indian Point 3 |
Nov. 2000 |
Buchanan, NY |
1,041 MW |
Pressurized Water Reactor |
2015 |
|||||
Indian Point 2 |
Sept. 2001 |
Buchanan, NY |
1,028 MW |
Pressurized Water Reactor |
2013 |
|||||
Vermont Yankee |
July 2002 |
Vernon, VT |
510 MW |
Boiling Water Reactor |
2012 |
Non-Utility Nuclear added 47 MW of capacity in 2005 through an uprate at Indian Point 3. In March 2006 the NRC approved a planned 95 MW uprate at Vermont Yankee that Non-Utility Nuclear intends to implement in 2006.
Interconnections
The Pilgrim and Vermont Yankee plants are dispatched as a part of Independent System Operator (ISO) New England and the FitzPatrick and Indian Point plants are dispatched by the New York Independent System Operator (NYISO). The primary purpose of ISO New England is to direct the operations of the major generation and transmission facilities in the New England region and the primary purpose of NYISO is to direct the operations of the major generation and transmission facilities in New York state.
Energy and Capacity Sales
Entergy's Non-Utility Nuclear business has entered into power purchase agreements (PPAs) with creditworthy counterparties to sell the energy produced by its power plants at prices established in the PPAs. Entergy continues to pursue opportunities to extend the existing PPAs and to enter into new PPAs with other parties. Following is a summary of the amount of the Non-Utility Nuclear business' output that is currently sold forward under physical or financial contracts:
2006 |
2007 |
2008 |
2009 |
2010 |
|||||||
Non-Utility Nuclear: |
|||||||||||
Percent of planned generation sold forward: |
|||||||||||
Unit-contingent |
34% |
32% |
25% |
19% |
12% |
||||||
Unit-contingent with availability guarantees |
53% |
47% |
32% |
13% |
5% |
||||||
Firm liquidated damages |
4% |
2% |
0% |
0% |
0% |
||||||
Total |
91% |
81% |
57% |
32% |
17% |
||||||
Planned generation (TWh) |
35 |
34 |
34 |
35 |
34 |
||||||
Average contracted price per MWh |
$41 |
$45 |
$49 |
$54 |
$45 |
The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant, which is through the expiration in 2012 of the current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly, beginning in November 2005, if power market prices drop below PPA prices.
A sale of power on a unit contingent basis coupled with an availability guarantee provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy's outstanding availability guarantees provide for dollar limits on Entergy's maximum liability under such guarantees.
Non-Utility Nuclear's purchase of the Fitzpatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. Under the value sharing agreements, to the extent that the average annual price of the energy sales from each of the two plants exceeds specified strike prices, the Non-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to NYPA. These payments, if required, will be recorded as adjustments to the purchase price of the plants. The annual energy sales subject to the value sharing agreements are limited to the lesser of actual generation or generation assuming an 85% capacity factor based on the plants' capacities at the time of the purchase. The value sharing agreements are effective through 2014. The strike prices for Fitzpatrick range from $37.51/MWh in 2005 increasing by approximately 3.5% each year to $51.30/MWh in 2014, and the strike prices for Indian Point 3 range from $42.26/MWh in 2005 increasing by approximately 3.5% eac h year to $57.77/MWh in 2014.
Non-Utility Nuclear's purchase of the Vermont Yankee plant included a value sharing agreement providing for payments to the seller in the event that the plant's operating license is extended beyond its original expiration in 2012. Under the value sharing agreement, to the extent that the average annual price of the energy sales from the plant exceeds the specified strike price of $61/MWh on the plant's original capacity of 510 MW, the Non-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to Vermont Public Service. These payments, if required, will be recorded as adjustments to the purchase price of the plants. The value sharing would begin in 2012 and extend into 2022.
Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants and the wholesale supply agreements entered into by Entergy's Competitive Retail business contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear and Competitive Retail businesses sell power. The primary form of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. At December 31, 2005, based on power prices at that time, Entergy had in place as collateral $1,630 million of Entergy Corporation guarantees for wholesale transactions, $237 million of which support letters of credit. The assurance requirement associated with No n-Utility Nuclear is estimated to increase by an amount up to $400 million if gas prices increase $1 per MMBtu in both the short- and long-term markets. In the event of a decrease in Entergy Corporation's credit rating to below investment grade, Entergy may be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements.
In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the ISO in their area. Following is a summary of the amount of the Non-Utility Nuclear business' installed capacity that is currently sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward:
2006 |
2007 |
2008 |
2009 |
2010 |
|||||||
Non-Utility Nuclear: |
|||||||||||
Percent of capacity sold forward: |
|||||||||||
Bundled capacity and energy contracts |
12% |
12% |
12% |
12% |
12% |
||||||
Capacity contracts |
77% |
46% |
36% |
24% |
3% |
||||||
Total |
89% |
58% |
48% |
36% |
15% |
||||||
Planned net MW in operation |
4,184 |
4,200 |
4,200 |
4,200 |
4,200 |
||||||
Average capacity contract price per kW per month |
$1.0 |
$1.1 |
$1.1 |
$1.0 |
$0.9 |
||||||
Blended Capacity and Energy (based on revenues) |
|||||||||||
% of planned generation and capacity sold forward |
82% |
71% |
47% |
27% |
12% |
||||||
Average contract revenue per MWh |
$42 |
$46 |
$50 |
$55 |
$46 |
As of December 31, 2005, approximately 96% of Non-Utility Nuclear's counterparty exposure from energy and capacity contracts is with counterparties with investment grade credit ratings.
Fuel Supply
Nuclear Fuel
The nuclear fuel requirements for Pilgrim, FitzPatrick, Indian Point 2, Indian Point 3, and Vermont Yankee are met pursuant to contracts made by Entergy's Non-Utility Nuclear business. Entergy Nuclear Fuels Company is responsible for contracts to acquire nuclear materials, except for fuel fabrication, for these non-utility nuclear plants.
Based upon currently planned fuel cycles, Entergy's nuclear units have contracts and inventory that provide adequate materials and services. Existing contracts for uranium concentrate, conversion of the concentrate to uranium hexafluoride, and enrichment of the uranium hexafluoride will provide a significant percentage of these materials and services over the next several years. Uranium market supply became much tighter in recent years. Costs and risks of obtaining supplies have increased for nuclear fuel users. It will be necessary for Entergy to enter into additional arrangements to acquire nuclear fuel in the future. It is not possible to predict the ultimate cost or availability of such arrangements.
Other Business Activities
Entergy Nuclear, Inc. also pursues service agreements with other nuclear power plants owners who seek the advantages of Entergy's scale and expertise but do not necessarily want to sell their assets. Services provided by either Entergy Nuclear, Inc. or other Non-Utility Nuclear subsidiaries include engineering, operations and maintenance, fuel procurement, management and supervision, technical support and training, administrative support, and other managerial or technical services required to operate, maintain, and decommission nuclear electric power facilities. Entergy Nuclear, Inc. provided decommissioning services for the Maine Yankee nuclear power plant and continues to pursue opportunities for Non-Utility Nuclear with other nuclear plant owners through operating agreements or innovative arrangements such as structured leases.
In September 2003, Entergy's Non-Utility Nuclear business agreed to provide administrative support services for the 800 MW Cooper Nuclear Station located near Brownville, Nebraska. The contract is for 10 years, the remaining term of the plant's operating license. Entergy will receive $14 million in 2006 and in each of the remaining years of the contract. Entergy can also receive up to $6 million more per year beginning in 2007 if safety and regulatory goals are met. In addition, Entergy will be reimbursed for all employee-related expenses.
Entergy Nuclear, Inc. also is a party to two business arrangements that assist it in providing operation and management services. Entergy Nuclear, Inc., in partnership with Areva (f/k/a Framatome ANP), offers operating license renewal and life extension services to nuclear power plants in the United States. Entergy Nuclear Inc., through its subsidiary, TLG Services, offers decommissioning, engineering, and related services to nuclear power plant owners.
Energy Commodity Services
Energy Commodity Services includes Entergy-Koch, LP and Entergy's non-nuclear wholesale assets business. The non-nuclear wholesale assets business sells to wholesale customers the electric power produced by power plants that it owns while it focuses on improving performance and exploring sales or restructuring opportunities for its power plants. Such opportunities are evaluated consistent with Entergy's market-based point-of-view. The non-nuclear wholesale assets business terminated new greenfield power development activity in 2002. Entergy-Koch, LP engaged in two major businesses: energy commodity marketing and trading through Entergy-Koch Trading, and gas transportation and storage through Gulf South Pipeline. Entergy-Koch sold both of these businesses in the fourth quarter of 2004, and Entergy-Koch is no longer an operating entity.
Non-Nuclear Wholesale Assets Business
Property
Generating Stations
The capacity of the generating stations owned in Entergy's non-nuclear wholesale assets business as of December 31, 2005 is indicated below:
|
|
|
Net Owned |
|
||||
Ritchie Unit 2, 544 MW |
Helena, AR |
100% |
544 MW |
Gas/Oil |
||||
Independence Unit 2, 842 MW |
Newark, AR |
14% |
121 MW(2) |
Coal |
||||
Warren Power, 300 MW |
Vicksburg, MS |
75% |
225 MW(2) |
Gas Turbine |
||||
Top of Iowa, 80 MW (3) |
Worth County, IA |
50% |
40 MW |
Wind |
||||
White Deer, 80 MW (3) |
Amarillo, TX |
50% |
40 MW |
Wind |
||||
RS Cogen, 425 MW (3) |
Lake Charles, LA |
50% |
213 MW |
Gas/Steam |
||||
Harrison County, 550 MW |
Marshall, TX |
61% |
335 MW(2) |
Combined Cycle Gas Turbine |
(1) |
"Net Owned Capacity" refers to the nameplate rating on the generating unit. |
(2) |
The owned MW capacity is the portion of the plant capacity owned by Entergy's non-nuclear wholesale assets business. For a complete listing of Entergy's joint-owned generating stations, refer to "Jointly-Owned Generating Stations" in Note 1 to the consolidated financial statements. |
(3) |
Indirectly owned through interests in unconsolidated joint ventures. |
In addition to these generating stations, Entergy's non-nuclear wholesale assets business has a contract to take 60 MW of the power from a portion of the Nelson 6 coal plant owned by a third party.
Energy and Capacity Sales
Following is a summary of the amount of Energy Commodity Services' output and installed capacity that is currently sold forward under physical or financial contracts at fixed prices:
2006 |
2007 |
2008 |
2009 |
2010 |
||||||
Energy Commodity Services: |
||||||||||
Capacity |
||||||||||
Planned MW in operation |
1,578 |
1,578 |
1,578 |
1,578 |
1,578 |
|||||
% of capacity sold forward |
33% |
29% |
29% |
19% |
17% |
|||||
Energy |
||||||||||
Planned generation (TWh) |
4 |
4 |
4 |
4 |
4 |
|||||
% of planned generation sold forward |
47% |
41% |
43% |
36% |
36% |
|||||
Blended Capacity and Energy (based on revenues) |
||||||||||
% of planned energy and capacity sold forward |
25% |
23% |
26% |
17% |
17% |
|||||
Average contract revenue per MWh |
$26 |
$28 |
$28 |
$21 |
$20 |
Entergy-Koch, LP
Entergy-Koch is a limited partnership owned 50% each by Entergy and Koch Industries, Inc, through subsidiaries. Entergy-Koch began operations on February 1, 2001. Entergy contributed most of the assets and trading contracts of its power marketing and trading business and $414 million cash to the venture and Koch contributed its approximately 8,000-mile Koch Gateway Pipeline (renamed Gulf South Pipeline), gas storage facilities, and Koch Energy Trading, which marketed and traded electricity, gas, weather derivatives, and other energy-related commodities and services. As specified in the partnership agreement, Entergy contributed an additional $72.7 million to the partnership in January 2004.
In the fourth quarter of 2004, Entergy-Koch sold its energy trading and pipeline businesses to third parties. The sales came after a review of strategic alternatives for enhancing the value of Entergy-Koch, LP. Entergy received $862 million of cash distributions in 2004 from Entergy-Koch after the business sales, and Entergy ultimately expects to receive total net cash distributions exceeding $1 billion, comprised of the after-tax cash from the distributions of the sales proceeds and the eventual liquidation of Entergy-Koch. Entergy currently expects the net cash distributions that it will receive will exceed its equity investment in Entergy-Koch, and expects to record a $60 million net-of-tax gain when it receives the remaining cash distributions, which it expects will occur in 2006.
Regulation of Entergy's Business
PUHCA 2005
As part of the Energy Policy Act of 2005, PUHCA 2005 repealed PUHCA 1935. See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Federal Power Act
The Federal Power Act regulates:
The Federal Power Act gives FERC jurisdiction over the rates charged by System Energy for Grand Gulf capacity and energy provided to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans and over some of the rates charged by Entergy Arkansas and Entergy Gulf States. FERC also regulates the rates charged for intrasystem sales pursuant to the System Agreement and the provision of transmission service to wholesale market participants.
Entergy Arkansas holds a FERC license that expires in 2053 for two hydroelectric projects totaling 70 MW of capacity.
State Regulation
Entergy Arkansas is subject to regulation by the APSC, which includes the authority to:
To the extent authorized by governing legislation, Entergy Gulf States is subject to the original jurisdiction of the municipal authorities of a number of incorporated cities in Texas with appellate jurisdiction over such matters residing in the PUCT. Entergy Gulf States' Texas business is also subject to regulation by the PUCT as to:
Entergy Gulf States' Louisiana electric and gas business and Entergy Louisiana are subject to regulation by the LPSC as to:
Entergy Louisiana is also subject to the jurisdiction of the City Council with respect to such matters within Algiers in Orleans Parish.
Entergy Mississippi is subject to regulation by the MPSC as to the following:
Entergy Mississippi is also subject to regulation by the APSC as to the certificate of environmental compatibility and public need for the Independence Station, which is located in Arkansas.
Entergy New Orleans is subject to regulation by the Council as to the following:
Regulation of the Nuclear Power Industry
Atomic Energy Act of 1954 and Energy Reorganization Act of 1974
Under the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974, the operation of nuclear plants is heavily regulated by the NRC, which has broad power to impose licensing and safety-related requirements. The NRC has broad authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy, as owners of all or portions of ANO, River Bend, Waterford 3, and Grand Gulf, respectively, and Entergy Operations, as the licensee and operator of these units, are subject to the jurisdiction of the NRC. Entergy's Non-Utility Nuclear business is subject to the NRC's jurisdiction as the owner and operator of Pilgrim, Indian Point Energy Center, FitzPatrick, and Vermont Yankee. Substantial capital expenditures at Entergy's nuclear plants because of revised safety requirements of the NRC could be required in the future.
Nuclear Waste Policy Act of 1982
Under the Nuclear Waste Policy Act of 1982, the DOE is required, for a specified fee, to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-level radioactive waste generated by domestic nuclear power reactors. Entergy's nuclear owner/licensee subsidiaries provide for the estimated future disposal costs of spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. The affected Entergy companies entered into contracts with the DOE, whereby the DOE will furnish disposal service at a cost of one mill per net kWh generated and sold after April 7, 1983, plus a one-time fee for generation prior to that date. Entergy Arkansas is the only one of the domestic utility companies that generated electric power with nuclear fuel prior to that date and has a recorded liability as of December 31, 2005 of $159.6 million for the one-time fee. Entergy's Non-Utility Nuclear business has accepted assignment of the Pilgrim, FitzPatrick, Indian Point 3, Indian Point 2, and Vermont Yankee spent fuel disposal contracts with the DOE held by their previous owners. The previous owners have paid or retained liability for the fees for all generation prior to the purchase dates of those plants. The fees payable to the DOE may be adjusted in the future to assure full recovery. Entergy considers all costs incurred for the disposal of spent nuclear fuel, except accrued interest, to be proper components of nuclear fuel expense. Provisions to recover such costs have been or will be made in applications to regulatory authorities for the U.S. Utility plants. By the end of 2005, Entergy's total spent fuel fees to date, including the one-time fee liability of Entergy Arkansas, surpassed one billion dollars.
The permanent spent fuel repository in the U.S. has been legislated to be Yucca Mountain, Nevada. The DOE is required by law to proceed with the licensing and, after the license is achieved (granted by the NRC), the repository construction and commencement of receipt of spent fuel. Since DOE has not accomplished these objectives, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel disposal contracts. DOE recently has had additional delays and has not indicated when the license application will be filed. Large uncertainty remains regarding the time frame under which the DOE will begin to accept spent fuel from Entergy's facilities for storage or disposal. As a result, continuing future expenditures will be required to increase spent fuel storage capacity at Entergy's nuclear sites.
As a result of the DOE's failure to begin disposal of spent nuclear fuel in 1998 pursuant to the Nuclear Waste Policy Act of 1982 and the spent fuel disposal contracts, Entergy's nuclear owner/licensee subsidiaries have incurred and will continue to incur damages. These subsidiaries in November 2003 began litigation to recover the damages caused by the DOE's delay in performance. Management cannot predict the timing or amount of any potential recovery.
Pending DOE acceptance and disposal of spent nuclear fuel, the owners of nuclear plants are providing their own spent fuel storage. Current on-site spent fuel storage capacity at Grand Gulf and Waterford is estimated to be sufficient until approximately 2007 and 2012, respectively; dry cask storage facilities are planned to be placed into service at these units in 2006 and 2011, respectively. Construction at Grand Gulf's facility is in progress. River Bend loaded its first dry cask at its new facility in December 2005 and will load more dry casks as needed. An ANO storage facility using dry casks began operation in 1996 and has been expanded since and will be further expanded as needed. The spent fuel storage pool at Pilgrim is licensed to provide enough storage capacity until approximately 2012. The first spent fuel, dry casks storage were loaded at Fitzpatrick in 2002, and further dry casks have been and will be loaded there as needed. Indian Point and Vermont Yankee currently have sufficient spent fuel storage capacity until approximately 2006 and 2007, respectively; dry cask storage facilities are planned to begin operation at both sites in 2006 and 2007, respectively. Implementation of dry cask storage at Vermont Yankee is currently the subject of pending regulatory proceedings in Vermont.
Nuclear Plant Decommissioning
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy recover from customers through electric rates the estimated decommissioning costs for ANO, the portion of River Bend subject to retail rate regulation, Waterford 3, and Grand Gulf, respectively. These amounts are deposited in trust funds that can only be used for future decommissioning costs. Entergy periodically reviews and updates estimated decommissioning costs to reflect inflation and changes in regulatory requirements and technology, and then makes applications to the regulatory authorities to reflect, in rates, the changes in projected decommissioning costs.
In June 2001, Entergy Arkansas received notification from the NRC of approval for a renewed operating license authorizing operations at ANO 1 through May 2034. In July 2005, Entergy Arkansas received notification from the NRC of approval for a renewed operating license authorizing operations at ANO 2 through July 2038. The APSC ordered Entergy Arkansas to use a 20-year life extension assumption for ANO 1 and 2, which resulted in the cessation of the collection of funds to decommission ANO 1 and 2 beginning in 2001. Entergy Arkansas' projections show that with the assumption of 20 years of extended operational life for both units, the current fund balance with earnings over the extended life will be sufficient to decommission both units. Every five years, Entergy Arkansas is required by the APSC to update the estimated costs to decommission ANO. In March 2003, Entergy Arkansas filed with the APSC its third five-year estimate of ANO decommissioning costs. The updated estimate indic ated the current cost to decommission the two ANO units would be $936 million compared to $813 million in the 1997 estimate. In September 2003, the APSC approved a stipulation between the APSC Staff and Entergy Arkansas resolving issues in the decommissioning cost estimate proceeding. Entergy Arkansas and the APSC Staff agreed to exclude, at this time, certain spent fuel management costs because of uncertainty associated with the responsibility of the DOE for all or a portion of those costs as a result of Entergy Arkansas' contract with the DOE to start taking spent fuel from ANO beginning in 1998. Entergy Arkansas reserves the right to seek a decision from the APSC on this issue prior to the next required decommissioning cost filing should significant changes in relevant facts and circumstances warrant.
In December 2002, the LPSC approved a settlement between Entergy Gulf States and the LPSC staff. The settlement included, among other things, the approval to cease collection of funds to decommission River Bend based on an assumed license extension for River Bend.
As part of the Pilgrim, Indian Point 1 and 2, and Vermont Yankee purchases, Boston Edison, Consolidated Edison, and VYNPC, respectively, transferred decommissioning trust funds, along with the liability to decommission the plants, to Entergy. Entergy believes that the decommissioning trust funds will be adequate to cover future decommissioning costs for these plants without any additional deposits to the trusts.
For the Indian Point 3 and FitzPatrick plants purchased in 2000, NYPA retained the decommissioning trusts and the decommissioning liability. NYPA and Entergy executed decommissioning agreements, which specify their decommissioning obligations. NYPA has the right to require Entergy to assume the decommissioning liability provided that it assigns the corresponding decommissioning trust, up to a specified level, to Entergy. If the decommissioning liability is retained by NYPA, Entergy will perform the decommissioning of the plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trusts. Entergy believes that the amounts available to it under either scenario are sufficient to cover the future decommissioning costs without any additional contributions to the trusts. In conjunction with the Pilgrim acquisition, Entergy received Pilgrim's decommissioning trust fund. Entergy believes that Pilgrim's decommissioning fund will be adequate to cover future decommissioning costs for the plant without any additional deposits to the trust. As part of the Indian Point 1 and 2 purchase, Consolidated Edison transferred the decommissioning trust fund and the liability to decommission Indian Point 1 and 2 to Entergy. Entergy also funded an additional $25 million to the decommissioning trust fund and believes that the trust will be adequate to cover future decommissioning costs for Indian Point 1 and 2 without any additional deposits to the trust.
Additional information with respect to decommissioning costs for ANO, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, and FitzPatrick is found in Note 8 to the financial statements.
Energy Policy Act of 1992
The Energy Policy Act of 1992 requires all electric utilities (including Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) that purchased uranium enrichment services from the DOE to contribute up to a total of $150 million annually over approximately 15 years (adjusted for inflation, up to a total of $2.25 billion) for decontamination and decommissioning of enrichment facilities. At December 31, 2005, one year of assessments remains. In accordance with the Energy Policy Act of 1992, contributions to decontamination and decommissioning funds are recovered through rates in the same manner as other fuel costs. The estimated annual contributions by Entergy for decontamination and decommissioning fees are discussed in Note 8 to the financial statements. Entergy will oppose any attempts to extend the assessments past this date, but cannot state with certainty that an extension will not be made.
Price-Anderson Act
The Price-Anderson Act limits public liability for a single nuclear incident to approximately $100.6 million per reactor (with currently 104 nuclear industry reactors participating). Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, System Energy, and Entergy's Non-Utility Nuclear business have protection with respect to this liability through a combination of private insurance and an industry assessment program, as well as insurance for property damage, costs of replacement power, and other risks relating to nuclear generating units. Insurance applicable to the nuclear programs of Entergy is discussed in Note 8 to the financial statements.
Environmental Regulation
Entergy's facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that its affected companies are in substantial compliance with environmental regulations currently applicable to their facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Clean Air Act and Subsequent Amendments
The Clean Air Act and its subsequent Amendments (the Clean Air Act) established several programs that currently or in the future may affect Entergy's fossil-fueled generation facilities:
New Source Review
Preconstruction permits are required for new facilities and for existing facilities that undergo a modification that is not classified as routine repair, maintenance, or replacement. Units that undergo a non-routine modification must obtain a permit modification and may be required to install additional air pollution control technologies. Entergy has an established process for identifying modifications requiring additional permitting approval and has followed the regulations and associated guidance provided by the states and the federal government with regard to the determination of routine repair, maintenance, and replacement. In recent years, however, EPA has begun an enforcement initiative, aimed primarily at coal plants, to identify modifications that it does not consider routine and that have failed to obtain a permit modification. Entergy to date has not been included in any of these enforcement actions. Nevertheless, various courts and the EPA have been inconsistent in their jud gments regarding what modifications are considered routine. In 2003, the EPA promulgated a rule to attempt to clarify this issue, but the rule has been challenged in the United States Court of Appeals for the District of Columbia Circuit, and its effectiveness has been stayed by the court. The court is expected to issue a ruling this year.
Acid Rain Program
The Clean Air Act provides SO2 allowances to most of the affected Entergy generating units for emissions based upon past emission levels and operating characteristics. Each allowance is an entitlement to emit one ton of SO2 per year. Plant owners are required to possess allowances for SO2 emissions from affected generating units. Virtually all Entergy fossil-fueled generating units are subject to SO2 allowance requirements. Entergy could be required to purchase additional allowances when it generates power using fuel oil. Fuel oil usage is determined by economic dispatch and influenced by the price of natural gas, incremental emission allowance costs, and the availability and cost of purchased power.
Ozone Non-attainment
Entergy Gulf States and Entergy Louisiana each operate fossil-fueled generating units in geographic areas that are not in attainment of the currently-enforced national ambient air quality standards for ozone. Texas non-attainment areas that impact Entergy are the Houston-Galveston and the Beaumont-Port Arthur areas. In Louisiana, Entergy is affected by the non-attainment status of the Baton Rouge area. Areas in non-attainment are classified as "marginal", "moderate," "serious," or "severe." When an area fails to meet the ambient air standard, the EPA requires state regulatory authorities to prepare state implementation plans meant to cause progress toward bringing the area into attainment with applicable standards.
In April 2004, the EPA issued a final rule, effective June 2005, revoking the 1-hour ozone standard, including designations and classifications. In a separate action over the same period, the EPA enacted 8-hour ozone non-attainment classifications and stated that areas designated as non-attainment under a new 8-hour ozone standard shall have one year to adjust to the new requirements with submittal of a new attainment plan. For Louisiana, the Baton Rouge area is now classified as a ''marginal" (rather than "severe") non-attainment area under the new standard with an attainment date of June 15, 2007. For Texas, the Beaumont-Port Arthur area is now classified as a "marginal" (rather than "serious") non-attainment area under the new standard with an attainment date of June 15, 2007 and the Houston-Galveston area is now classified as "moderate" non-attainment under the new standard with an attainment date of June 15, 2010. Specific costs of compliance cannot be estimated at this time, but Entergy is monitoring development of the respective state implementation plans and will develop specific compliance strategies as the plans move through the adoption process.
Hazardous Air Pollutants
In March 2005, the EPA issued a federal rule to permanently cap and reduce mercury emissions from coal-fired power plants. The Clean Air Mercury Rule establishes "standards of performance" limiting mercury emissions from new and existing coal-fired power plants and creates a market-based cap-and-trade program that will reduce nationwide utility emissions of mercury in two distinct phases. The first phase cap is 38 tons beginning in 2010. The rule has been challenged in the United States Court of Appeals for the District of Columbia Circuit; however, unless the rule is stayed, compliance deadlines remain in effect. The rule is also being challenged by various members of the U.S. Senate through a process called the Congressional Review Act. EPA recently announced it is accepting additional comments on certain aspects of the regulation. The regulatory approach chosen by EPA to regulate mercury emissions is quite controversial, and Entergy is monitoring developments and working towar ds a reasonable, cost-effective, technologically sound regulation.
Entergy owns units that will be subject to the mercury regulations and is studying compliance options in order to determine the best control alternative. Entergy expects that any necessary capital expenditures will occur between 2006 and 2009 and are estimated to be approximately $26 million. Ongoing operating costs will begin in 2010.
Interstate Air Transport
In March 2005, the EPA finalized the Clean Air Interstate Rule (CAIR), which will reduce SO2 and NOx emissions from electric generation plants in order to improve air quality in 29 eastern states. The rule will require a combination of investment of capital to install pollution control equipment and increased operating costs. Entergy's capital investment and annual operation and maintenance allowance purchase costs will depend on the economic assessment of NOx and SO2 allowance markets, the cost of control technologies, and unit usage. At this time, Entergy estimates that the cost to its Fossil generation fleet will be approximately $73 million.
The capital financial impact could be offset by emission markets which allow for purchases or use of allocated credits; however, the allocation of the emission allowances and the set up of the market will determine the ultimate cost to Entergy. Entergy believes that the allocation is unfairly skewed towards states with relatively higher emissions by the use of a fuel-adjustment factor. Accordingly, Entergy filed a request for reconsideration of the allocation. EPA granted this request and is reconsidering the rule. Entergy also has filed a challenge to this aspect of the rule in the D.C. Circuit. Entergy will continue to study the final rule's impact to its generation fleet and will work to ensure that all states are treated fairly in the allocation of emission credits.
In June 2005, the EPA issued the final Best Available Retrofit Control Technology (BART) regulations which could potentially result in a requirement to install SO2 pollution control technology on certain of Entergy's coal and oil generation units. The impact of this rule is unclear as it leaves BART determinations to be made by respective states, but could result in significant increased capital and operating costs on certain units.
Future Legislative and Regulatory Developments
In addition to the specific instances described above, there are a number of legislative and regulatory initiatives relating to the reduction of emissions that are under consideration at the federal, state, and international level. Because of the nature of Entergy's business, the adoption of each of these could affect its operations. These initiatives include:
Entergy continues to monitor these actions in order to analyze their potential operational and cost implications.
In anticipation of the potential imposition of CO2 emission limits on the electric industry in the future, Entergy has initiated actions designed to reduce its exposure to potential new governmental requirements related to CO2 emissions. These actions include establishment of a formal program to stabilize power plant CO2 emissions at year 2000 levels through 2005 and support for national legislation that would increase planning certainty for electric utilities while addressing emissions in a responsible and flexible manner. By virtue of its proportionally large investment in low- or non-emitting gas-fired and nuclear generation technologies, Entergy's overall CO2 emission "intensity," or rate of CO2 emitted per kilowatt-hour of electricity generated, is already among the lowest in the industry. Total CO2 emissions representing the company's ownership share of power plants in the United States were approximately 53.24 million tons in 2000, 49.58 million tons in 2001, 44.20 million tons in 2002, 36.78 million tons in 2003, 38.28 million tons in 2004 and 36.50 million tons in 2005.
Clean Water Act
The 1972 amendments to the Federal Water Pollution Control Act (known as the Clean Water Act or CWA) provide the statutory basis for the National Pollutant Discharge Elimination System permit program and the basic structure for regulating the discharge of pollutants from point sources to waters of the United States. The CWA requires all discharges of pollutants to waters of the United States to be permitted.
316(b) Cooling Water Intake Structures
The EPA finalized new regulations in July 2004 governing the intake of water at large existing power plants that employ cooling water intake structures. The rule seeks to reduce perceived impacts on aquatic resources by requiring covered facilities to implement technology or other measures to meet EPA-targeted reductions in water use and corresponding perceived aquatic impacts. Entergy, other industry members and industry groups, environmental groups, and a coalition of northeastern and mid-Atlantic states have challenged various aspects of the rule. This challenge currently is lodged in the United States Court of Appeals for the Second Circuit in New York City after a motion to transfer from the Ninth Circuit in San Francisco was granted in December 2004.
Entergy's non-utility nuclear generation business is currently in various stages of the data evaluation and discharge permitting process for its generation facilities. Indian Point is involved in an administrative permitting process with the New York environmental authority for renewal of the Indian Point 2 and 3 discharge permits. In November 2003, the New York State Department of Environmental Conservation (NYDEC) issued a draft permit indicating that closed cycle cooling would be considered the "best technology available" for minimizing perceived adverse environmental impacts attributable to the intake and discharge of cooling water at Indian Point 2 and 3. The draft permit would require Entergy to take certain steps to assess the feasibility of retrofitting the site to install cooling towers before re-licensing Indian Point 2 and 3, whose current licenses with the NRC expire in 2013 and 2015. The draft permit could also require, upon its becoming effective, the facilities to ta ke an annual 42 unit-day outage (coordinated with the existing refueling outage schedule) and provide a payment into a NYDEC account until the start of cooling tower construction. Entergy is participating in the administrative process in order to have the draft permit modified prior to final issuance and opposes any requirement to install cooling towers or to begin annual outages at Indian Point 2 and 3. Accordingly, Entergy also has filed a separate action in New York state court seeking a determination that the state cooling water intake structure regulation underpinning the NYDEC's draft permit for Indian Point 2 and 3 was improperly promulgated and is thus void. The New York trial court and interim appellate court dismissed Entergy's claim, and Entergy has appealed to the New York Court of Appeals. Pilgrim and Fitzpatrick received approval from the EPA and the NYDEC, respectively, allowing the full 3 1/2-year schedule for compliance demonstration as is outlined in the new rule and will also pursue ap propriate supplementation of the existing record regarding perceived impacts, options and costs. Entergy's other Non-Utility Nuclear generation facilities are in the process of reviewing data, considering implementation options, providing information required by the current rule to the EPA and the affected states, and requesting the 3 1/2-year submission schedule allowed by the rule, where necessary.
Entergy's domestic utility generation facilities are likewise in the process of reviewing data, considering implementation options, providing information required by the current rule to the EPA and the affected states, and requesting the extended submission schedule allowed by the rule, where necessary.
Oil Pollution Prevention Regulation
The EPA published a revised Oil Pollution Prevention rule in July 2002. The rule potentially affects Entergy's operation of its approximately 3,500 transmission and distribution electrical equipment installations. While the published rule provides a great deal of flexibility to the regulated community insofar as allowable strategies, it also provided the EPA with a great deal of discretion in evaluation of a facility's compliance with the rule. In September 2004, the EPA solicited comments on alternative management strategies for oil-filled electrical equipment that were proposed by the Utility Solid Waste Activities Group and Entergy. The EPA published a proposed rule in December 2005 that solicited comments on proposed compliance requirements for oil-filled operating equipment. This category of equipment includes devices such as oil-filled electrical equipment, turbine lubrication and hydraulic-actuated control systems. This proposal eliminates the mandatory requirement to equip such devices with oil containment systems and is extremely favorable to the electric utility industry. It is anticipated that the final rule will be issued in October 2006. In addition to the proposed rule, the EPA published and is seeking comment on guidance pertaining to other issues that were not adequately addressed in the August 2002 rule. The comment period for both documents closed on February 10, 2006.
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), authorizes the EPA to mandate clean-up by or to collect reimbursement of clean-up costs from owners or operators of sites from which hazardous substances may be or have been released. Parties that transported hazardous substances to these sites or arranged for the disposal of the substances are also deemed liable by CERCLA. CERCLA has been interpreted to impose strict, joint, and several liability on responsible parties. The domestic utility companies have sent waste materials to various disposal sites over the years. In addition, environmental laws now regulate certain of the companies' operating procedures and maintenance practices which historically were not subject to regulation. Some disposal sites used by Entergy have been the subject of governmental action under CERCLA, resulting in site clean-up activities. The domestic utility companies have participated to vari ous degrees in accordance with their respective potential liabilities in such site clean-ups and have developed experience with clean-up costs. The affected companies have established reserves for such environmental clean-up and restoration activities. Details of material CERCLA liabilities are discussed for each operating company in the "Other Environmental Matters" section below.
Other Environmental Matters
Entergy Gulf States
Several class action and other suits have been filed in state and federal courts seeking relief from Entergy Gulf States and others for damages caused by the disposal of hazardous waste and for asbestos-related disease allegedly resulting from exposure on Entergy Gulf States' premises (see "Litigation" below).
Entergy Gulf States is currently involved in a remedial investigation of the Lake Charles Service Center site, located in Lake Charles, Louisiana. A manufactured gas plant (MGP) is believed to have operated at this site from approximately 1916 to 1931. Coal tar, a by-product of the distillation process employed at MGPs, was apparently routed to a portion of the property for disposal. The same area has also been used as a landfill. In 1999, Entergy Gulf States signed a second Administrative Consent Order with the EPA to perform removal action at the site. In 2002, approximately 7,400 tons of contaminated soil and debris were excavated and disposed of from an area within the service center. In 2003, a cap was constructed over the remedial area to prevent the migration of contamination to the surface. In August 2005, an administrative order was issued by the EPA requiring that a 10-year groundwater study be conducted at this site. The groundwater monitoring study, which was delaye d because of Hurricane Rita, will begin in the first quarter of 2006. Entergy Gulf States believes that its ultimate responsibility for this site will not materially exceed its existing clean-up provision of $1.5 million.
In 1994, Entergy Gulf States performed a site assessment in conjunction with a construction project at the Louisiana Station Generating Plant (Louisiana Station). In 1995, a further assessment confirmed subsurface soil and groundwater impact to three areas on the plant site. After validation, a notification was made to the LDEQ and a phased process was executed to remediate each area of concern. The final phase of groundwater clean-up and monitoring at Louisiana Station is expected to continue through 2009. The remediation cost incurred through December 31, 2005 for this site was $6.7 million. Future costs are not expected to exceed the existing provision of $0.8 million.
Entergy Louisiana and Entergy New Orleans
Several class action and other suits have been filed in state and federal courts seeking relief from Entergy Louisiana and Entergy New Orleans and others for damages caused by the disposal of hazardous waste and for asbestos-related disease allegedly resulting from exposure on Entergy Louisiana's and Entergy New Orleans' premises (see "Litigation" below).
During 1993, the LDEQ issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana has determined that some of their power plant wastewater impoundments were affected by these regulations and may require remediation, repair, or closure. Completion of this work is dependent on pending LDEQ approval of submitted solid waste permit applications. As a result, a recorded liability in the amount of $2.1 million for Entergy Louisiana existed at December 31, 2005 for anticipated wastewater remediation and repairs and closures. Management of Entergy Louisiana believes this reserve to be adequate based on current estimates.
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans
The Texas Commission on Environmental Quality (Commission) notified Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans that the Commission believes those entities are potentially responsible parties (PRPs) concerning contamination existing at the San Angelo Electric Service Company (SESCO) facility in San Angelo, Texas. The facility operated as a transformer repair and scrapping facility from the 1930s until 2003. Both soil and groundwater contamination exists at the site. Entergy Gulf States and Entergy Louisiana sent transformers to this facility during the 1980s. Entergy Gulf States, Entergy Louisiana, and Entergy Arkansas have responded to an information request from the Commission and will continue to cooperate in this investigation. Entergy New Orleans has provided requested information concerning its status in bankruptcy. Entergy Gulf States and Entergy Louisiana have joined a group of PRPs responding to site conditions in cooperation with the Sta te of Texas, creating cost allocation models based on review of SESCO documents and employee interviews, and investigating contribution actions against other PRPs. Entergy Gulf States and Entergy Louisiana likely will be required to contribute to the remediation of contaminated soil and groundwater at the site, while Entergy Arkansas and Entergy New Orleans likely will pay de minimis amounts. Current estimates, although preliminary and variable depending on the level of third-party cost contributions, indicate that Entergy's total share of remediation costs likely will be less than $1 million.
Entergy New Orleans
In March 2004, agents of the United States Fish and Wildlife Service conducted an inspection of Entergy New Orleans' Michoud power plant and found a number of dead brown pelicans near the facility's water intake structure and fish-return trough. Brown pelicans are an endangered species in Louisiana. The United States Attorney's Office for the Eastern District of Louisiana (Attorney's Office) issued a grand jury subpoena to an Entergy New Orleans employee in May 2004 to give evidence regarding the cause of death of the pelicans. The Attorney's Office then agreed to meet with Entergy New Orleans rather than requiring the employee to testify. As a result of that meeting, Entergy New Orleans conducted an internal investigation of the matter and submitted a report to the Attorney's Office in August 2004. Entergy New Orleans also constructed an engineered walkway and cover over the intake structure and feeding trough to eliminate pelican access to the area. Entergy New Orleans continues ne gotiations with the Attorney's Office regarding final resolution of this matter.
Entergy Louisiana
Transmission and distribution storm teams entered wetland areas of Lafourche Parish to restore Entergy Louisiana's Barataria-Golden Meadow line shortly after Hurricane Katrina. A portion of this line crosses property owned by Lafourche Realty. The realty company has requested that Entergy Louisiana now conduct an extensive wetland mitigation program over a ten-acre area. Entergy Louisiana believes that the marsh area affected by its activities is less than 2 acres and that restoration can be conducted to the satisfaction of the United States Corps of Engineers and the State of Louisiana for less than $1 million. Entergy Louisiana is meeting with the Corps and the State of Louisiana to determine the extent of mitigation required by the Clean Water Act and parallel state law.
Litigation
Entergy uses legal and appropriate means to contest litigation threatened or filed against it, but certain states in which Entergy operates have proven to be unusually litigious environments. Judges and juries in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. The litigation environment in these states poses a significant business risk to Entergy.
Ratepayer Lawsuits (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans)
Entergy New Orleans Fuel Clause Litigation
In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel or energy from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plai ntiffs also seek to recover interest and attorneys' fees. Entergy filed exceptions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over these issues rests with the City Council and FERC. In March 2004, the plaintiffs supplemented and amended their petition. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. The suit in state court has been stayed by stipulation of the parties pending review of the decision by the City Council in the proceeding discussed in the next paragraph.
Plaintiffs also filed a corresponding complaint with the City Council in order to initiate a review by the City Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed on behalf of the plaintiffs in this proceeding asserting, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in Entergy New Orleans customers being overcharged by more than $100 million over a period of years. Hearings were held in February and March 2002. In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegat ion that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy Corporation or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs appealed the City Council resolution to the state courts. On May 26, 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiff's claim that the refund amount should be higher.
In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal. Subsequent to Entergy New Orleans' filing of a bankruptcy petition in the Eastern District of Louisiana, Entergy New Orleans filed a Notice of Stay with the Court of Appeal. The Bankruptcy Court lifted the stay with respect to the plaintiffs' appeal of the Civil District Court decision, but the class action lawsuit remains stayed. In February 2006, Entergy New Orleans filed a notice removing the class action lawsuit from the Civil District Court to the U.S. District Court for the Eastern District of Louisiana. Additionally, in the Entergy New Orleans bankruptcy proceeding, the named plaintiffs in the Entergy New Orleans fuel clause lawsuit, together with the named plaintiffs in the Entergy New Orleans rate of return lawsuit, filed a Complaint for Declaratory Judgment asking the court to declare that Entergy New Orleans, Entergy Corporation, and Entergy Serv ices are a single business enterprise, and as such, are liable in solido with Entergy New Orleans for any claims asserted in the Entergy New Orleans fuel clause lawsuit and the Entergy New Orleans rate of return lawsuit, and alternatively, that the automatic stay be lifted to permit the movants to pursue the same relief in state court. Answers were due in this adversary proceeding in February 2006, but Entergy New Orleans has requested an extension to answer until March 2006.
Entergy New Orleans Rate of Return Lawsuit
In April 1998, a group of residential and business ratepayers filed a complaint against Entergy New Orleans in state court in Orleans Parish purportedly on behalf of all ratepayers in New Orleans. The plaintiffs allege that Entergy New Orleans overcharged ratepayers by at least $300 million since 1975 in violation of limits on Entergy New Orleans' rate of return that the plaintiffs allege were established by ordinances passed by the Council in 1922. The plaintiffs seek, among other things, (i) a declaratory judgment that such franchise ordinances have been violated; and (ii) a remand to the Council for the establishment of the amount of overcharges plus interest. Entergy New Orleans believes the lawsuit is without merit. Entergy New Orleans has charged only those rates authorized by the Council in accordance with applicable law. In May 2000, a court of appeal granted Entergy New Orleans' exception to jurisdiction in the case and dismissed the proceeding. The Louisiana Supreme Cou rt denied the plaintiff's request for a writ of certiorari. The plaintiffs then commenced a similar proceeding before the Council. The plaintiffs and the advisors for the Council each filed their first round of testimony in January 2002. In their testimony, the plaintiffs allege that Entergy New Orleans earned in excess of the legally authorized rate of return during the period 1979 to 2000 and that Entergy New Orleans should be required to refund between $240 million and $825 million to its ratepayers. In the testimony submitted by the Council advisors, the advisors allege that Entergy New Orleans has not earned in excess of its authorized rate of return for the period at issue and that no refund is therefore warranted.
In December 2003, the Council Advisors filed a motion in the City Council proceedings to bifurcate the hearing in this matter, such that the effect of the provision of the 1922 Ordinance in setting lawful rates would be considered first. Only if it is determined that this provision establishes a limitation, would the remaining issues be reached. The motion to bifurcate was granted by the City Council in April 2004, and a hearing on the first part of the bifurcated proceeding was completed in June 2005. A briefing schedule has been established which calls for submission of the Phase I evidentiary record to the City Council in March 2006.
Additionally, in the Entergy New Orleans bankruptcy proceeding, the named plaintiffs in the Entergy New Orleans rate of return lawsuit, together with the named plaintiffs in the Entergy New Orleans fuel clause lawsuit, filed a Complaint for Declaratory Judgment asking the court to declare that Entergy New Orleans, Entergy Corporation, and Entergy Services are a single business enterprise, and as such, are liable in solido with Entergy New Orleans for any claims asserted in the Entergy New Orleans rate of return lawsuit and the Entergy New Orleans fuel clause lawsuit, and alternatively, that the automatic stay be lifted to permit the movants to pursue the same relief in state court. Answers were due in this adversary proceeding in February 2006, but Entergy New Orleans has requested an extension to answer until March 2006.
Texas Power Price Lawsuit
In August 2003, a lawsuit was filed in the district court of Chambers County, Texas by Texas residents on behalf of a purported class apparently of the Texas retail customers of Entergy Gulf States who were billed and paid for electric power from January 1, 1994 to the present. The named defendants include Entergy Corporation, Entergy Services, Entergy Power, Entergy Power Marketing Corp., and Entergy Arkansas. Entergy Gulf States is not a named defendant, but is alleged to be a co-conspirator. The court has granted the request of Entergy Gulf States to intervene in the lawsuit to protect its interests.
Plaintiffs allege that the defendants implemented a "price gouging accounting scheme" to sell to plaintiffs and similarly situated utility customers higher priced power generated by the defendants while rejecting and/or reselling to off-system utilities, less expensive power offered and/or purchased from off-system suppliers and/or generated by the Entergy system. In particular, plaintiffs allege that the defendants manipulated and continue to manipulate the dispatch of generation so that power is purchased from affiliated expensive resources instead of buying cheaper off-system power.
Plaintiffs estimate that customers in Texas were charged at least $57 million above prevailing market prices for power. Plaintiffs seek actual, consequential and exemplary damages, costs and attorneys' fees, and disgorgement of profits. In September 2003, the Entergy defendants removed the lawsuit to the federal court in Galveston, and in October 2003, filed a pleading seeking dismissal of the plaintiffs' claims. In October 2003, the plaintiffs filed a motion to remand the case to state court. In January 2004, the federal court determined that it did not have jurisdiction over the subject matter of the lawsuit, and remanded the case to the state district court in Chambers County. In November 2004, the state district court dismissed the case based on a lack of jurisdiction. The plaintiffs have initiated appellate proceedings in the court of appeals.
On March 2, 2006 the Corpus Christi Court of Appeals handed down its opinion and judgment. The court of appeals determined that neither the FERC nor the PUCT had exclusive jurisdiction over the plaintiffs' claims and, on this basis, reversed the district court's dismissal order and remanded the case for further proceedings. The court of appeals affirmed the district court's decision allowing Entergy Gulf States to intervene in the case. Entergy now has the option of seeking rehearing from the court of appeals, or of filing a petition for review with the Texas Supreme Court.
Murphy Oil Lawsuit (Entergy Corporation and Entergy Louisiana)
Residents located near the Murphy Oil Refinery in Meraux, Louisiana filed several lawsuits in state court in St. Bernard Parish, Louisiana against Murphy Oil, Entergy Louisiana, and others for injuries they allegedly suffered as a result of an explosion at the refinery in June 1995. The lawsuits were consolidated and a class of plaintiffs was certified. Plaintiffs alleged, among other things, that an electrical fault at an Entergy Louisiana substation contributed to causing the explosion. Murphy Oil filed a cross-claim against Entergy Louisiana based on the same allegation, in which Murphy Oil seeks recovery of any damages it has paid to the plaintiffs. Claiborne P. Deming, who became a director of Entergy Corporation in 2002, is the President and Chief Executive Officer of Murphy Oil.
Murphy Oil and other defendants settled with the plaintiffs for $8.8 million, but Entergy Louisiana did not participate in the settlement. After trial for the remaining parties in the proceeding, the judge issued a decision finding Entergy Louisiana 40% responsible and awarding monetary damages, which total approximately $11 million with interest against Entergy Louisiana. Entergy Louisiana appealed the judgment to the Court of Appeals. Entergy Louisiana has insurance in place for claims of this type, and management does not expect a material adverse financial effect from this decision.
Fiber Optic Cable Litigation (Entergy Corporation, Entergy Gulf States, and Entergy Louisiana and Entergy Mississippi)
In 1998, a group of property owners filed a class action suit against Entergy Corporation, Entergy Gulf States, Entergy Services, and Entergy Technology Holding Company in state court in Jefferson County, Texas purportedly on behalf of all property owners in each of the states throughout the Entergy service area who have conveyed easements to the defendants. The lawsuit alleged that Entergy installed fiber optic cable across their property without obtaining appropriate easements. The plaintiffs sought actual damages for the use of the land and a share of the profits made through use of the fiber optic cables and punitive damages. The state court petition was voluntarily dismissed, and the plaintiffs commenced a class action suit with the same claims in the United States District Court in Beaumont, Texas. Both sides have filed motions for summary judgment, which were heard by the court in late 2001. In 2003, the district judge ruled that as a matter of law, all of the Texas easements p ermit Entergy to utilize the fiber for their own communications. Further, the court ruled that approximately two-thirds of the Texas easements allow Entergy to use the fiber for external or third party communications. Entergy believes that any damages suffered by the remaining one-third plaintiff landowners are negligible and that there is no basis for the claim seeking a share of profits. I
n April 2004, the trial court entered an order denying the plaintiffs' request that this case be certified as a class. The plaintiffs appealed this ruling to the United States Court of Appeals for the Fifth Circuit, which recently upheld the trial court's order denying the class certification. At this time, management cannot determine the specific amount of damages being sought.Several property owners have filed a class action suit against Entergy Louisiana, Entergy Services, ETHC, and Entergy Technology Company in state court in St. James Parish, Louisiana purportedly on behalf of all property owners in Louisiana who have conveyed easements to the defendants. The lawsuit alleges that Entergy installed fiber optic cable across their property without obtaining appropriate easements. The plaintiffs seek actual damages for the use of the land and a share of the profits made through use of the fiber optic cables and punitive damages. Entergy removed the case to federal court in New Orleans; however, the District Court remanded the case back to state court. While Entergy appealed this ruling, recently the United States Court of Appeals for the Fifth Circuit denied this appeal. In December 2003, the trial court held a hearing to determine if a class should be certified. On February 18, 2004, the trial court entered an order certifying this matter as a c lass. Entergy appealed this ruling to the Louisiana Fifth Circuit Court of Appeals, which has denied Entergy's appeal of the trial court's order certifying a class. Entergy sought an appellate review of the certification order before the Louisiana Supreme Court, which was denied in December 2005. The state trial judge has set trial in this matter for May 2007. At this time, management cannot determine the specific amount of damages being sought.
Several property owners have filed separate lawsuits against Entergy Corporation, Entergy Mississippi, Entergy Services, ETHC, and ETC in state court in various counties in Mississippi alleging that Entergy Mississippi installed fiber optic cable across their properties without obtaining appropriate easements. The plaintiffs seek actual damages for the use of the land, a share of the profits made through use of the fiber optic cables, and an unspecified amount of punitive damages in the other cases. Plaintiffs in some of the lawsuits have agreed to dismiss the lawsuits based on evidence that there was no fiber optic cable running across their property.
Asbestos and Hazardous Waste Suits
(Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)Numerous lawsuits have been filed in federal and state courts in Texas, Louisiana, and Mississippi primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Many other defendants are named in these lawsuits as well. Currently, there are approximately 555 lawsuits involving approximately 10,000 claims. Reserves have been established that should be adequate to cover any exposure. Additionally, negotiations continue with insurers to recover more reimbursement. Management believes that loss exposure has been and will continue to be handled successfully so that the ultimate resolution of these matters will not be material, in the aggregate, to the companies' financial position or results of operation.
Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Entergy Corporation and the domestic utility companies are defendants in numerous lawsuits that have been filed by former employees alleging that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, and/or other protected characteristics. Entergy Corporation and the domestic utility companies are vigorously defending these suits and deny any liability to the plaintiffs. However, no assurance can be given as to the outcome of these cases, and at this time management cannot estimate the total amount of damages sought.
Research Spending
Entergy is a member of the Electric Power Research Institute (EPRI). EPRI conducts a broad range of research in major technical fields related to the electric utility industry. Entergy participates in various EPRI projects based on Entergy's needs and available resources. The domestic utility companies contributed $1.6 million in both 2005 and 2004 and $1.5 million in 2003 to EPRI. The Non-Utility Nuclear business contributed $2.1 million in 2005, $3.2 million in 2004, and $3 million in 2003.
Employees
Employees are an integral part of Entergy's commitment to serving its customers. As of December 31, 2005, Entergy employed 14,136 people.
U.S. Utility: |
|
|
Entergy Arkansas |
|
1,467 |
Entergy Gulf States |
|
1,616 |
Entergy Louisiana |
|
948 |
Entergy Mississippi |
|
797 |
Entergy New Orleans |
|
369 |
System Energy |
|
- |
Entergy Operations |
|
2,684 |
Entergy Services |
|
2,676 |
Entergy Nuclear Operations |
|
3,218 |
Other subsidiaries |
|
220 |
Total Full-time |
|
13,995 |
Part-time |
|
141 |
Total Entergy |
|
14,136 |
Approximately 4,800 employees are represented by the International Brotherhood of Electrical Workers Union, the Utility Workers Union of America, and the International Brotherhood of Teamsters Union.
RISK FACTORS
The following factors, in addition to others specifically addressed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, could have a material impact on Entergy's and its subsidiaries' operations, financial results and financial condition, and could cause Entergy's and its subsidiaries' actual results or outcomes to differ materially from any projected outcome contained in any forward-looking statement in this report:
(Entergy Corporation, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Entergy's results of operations, financial condition and liquidity could be materially and adversely affected if the domestic utility companies fail to recover, or experience delays in recovering, storm restoration costs incurred as a result of Hurricane Katrina and Hurricane Rita or as a result of continued lost revenue from these two hurricanes.
Hurricanes Katrina and Rita caused catastrophic damage in Louisiana, Mississippi and Texas to portions of the service territories of Entergy New Orleans, Entergy Louisiana, Entergy Mississippi and Entergy Gulf States. As a result of these two hurricanes, these subsidiaries have recorded accruals for the estimated storm restoration costs for the repair and/or replacement of their electric and gas facilities damaged by Hurricanes Katrina and Rita and business continuity costs, which are currently estimated to be $1.5 billion. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales. Entergy and the domestic utility companies are pursuing a broad range of initiatives to recover storm restoration costs. Initiatives include (1) obtaining reimbursement of certain costs covered by insurance, (2) obtaining assis tance through federal legislation for Hurricane Katrina as well as Hurricane Rita, and (3) pursuing recovery through existing or new rate mechanisms regulated by FERC and local regulatory bodies. Because the domestic utility companies have not completed the regulatory process regarding these storm costs, however, there is an element of risk regarding recovery. Entergy is unable to predict with certainty the degree of success the domestic utility companies may have in their recovery initiatives, the amount of restoration costs, insurance proceeds and incremental losses they may ultimately recover, or the timing of such recovery. For further information regarding the effects of Hurricane Katrina and Hurricane Rita, including the effect on revenues for those domestic utility companies where customers are unable to accept electric and gas service, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - "Hurricane Katrina and Hurricane Rita." For further information with respect to storm cost recovery regulatory filings, reference is made to Note 2 "RATE AND REGULATORY MATTERS" - Regulatory Assets - "Other Regulatory Assets" to the Entergy consolidated financial statements and the respective financial statements of the domestic utility companies and System Energy.
(Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans)
The consequences of Hurricanes Katrina and Rita have negatively affected the liquidity of Entergy and the domestic utility companies. The occurrence of one or more contingencies, including other unknown events such as other hurricanes or ice storms, and increases in gas and fuel prices, could put further pressure on the adequacy of the liquidity and capital resources of Entergy, the domestic utility companies and the Non-Utility Nuclear and Competitive Retail Services businesses, which could materially and adversely affect the financial condition and results of operations of Entergy and the domestic utility companies, Entergy's corporate credit ratings and the credit ratings of the domestic utility companies.
Under normal circumstances, Entergy's business is capital intensive, and depends upon its ability to access capital at rates and on terms that Entergy determines to be reasonable. The hurricanes and the resulting consequences on Entergy's business have placed even greater importance on the ability of Entergy and its subsidiaries to access the capital markets to support the increased liquidity needs. At the same time, the continued rapid increase in natural gas prices has resulted in increased working capital requirements for the domestic utility companies while waiting for existing regulatory fuel and purchased power recovery mechanisms to catch-up. The high natural gas prices and effect of the cumulative deferred fuel balance will continue to have a negative effect on the liquidity of Entergy's domestic utility business.
Additionally, high power prices have caused and, in the future, may continue to cause, an increase in the liquidity needs for Entergy and the Non-Utility Nuclear and Competitive Retail Services businesses. Some of the agreements to sell power by Entergy's Non-Utility Nuclear power plants and the wholesale supply agreements entered into by Entergy's Competitive Services Retail business contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under these agreements. The Entergy subsidiary may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear and Competitive Retail Services businesses sell power. The primary form of the collateral to satisfy these requirements is an Entergy Corporation guarantee. Cash and letters of credit are also acceptable forms of collateral.
The occurrence of one or more contingencies, including higher than estimated storm restoration costs, lower than expected insurance recovery with respect to storm restoration costs, or a delay in such recovery, a delay in the recovery of storm restoration costs, a greater than expected increase in natural gas prices, an increase in credit support requirements relating to Entergy's Non-Utility Nuclear and Competitive Retail Services businesses, an acceleration of payments or decreased credit lines in respect of fuel or power supply to the domestic utility companies, less cash flow from operations than expected, or other unknown events, such as future storms, could cause the financing needs of Entergy and its subsidiaries to increase, which may result in an increase in leverage. Material leverage increases could negatively affect Entergy's access to the capital markets as well as its credit ratings and/or the credit ratings of its domestic utility companies.
The consequences of the hurricanes on Entergy's financial condition, and the related uncertainty associated with storm restoration cost recovery, together with other factors, such as the bankruptcy filing of Entergy New Orleans, have negatively impacted Entergy's credit profile and the credit profile of its domestic utility companies. Following Hurricane Katrina, Standard & Poor's Ratings Services placed Entergy and the domestic utility companies on credit watch with negative implications and Moody's Investors Service, Inc. placed the debt ratings of Entergy Gulf States on review for possible downgrade. After the Entergy New Orleans bankruptcy filing, Moody's Investors Service, Inc. and Standard & Poor's Ratings Services downgraded the senior secured debt ratings of Entergy New Orleans to Caa1 and D, respectively. If one or more rating agencies were to downgrade Entergy's corporate issuer rating or the senior secured debt ratings of any of the other domestic utility companies, p articularly to below investment grade, the borrowing costs of Entergy, the domestic utility companies and other subsidiaries could increase, which could negatively affect their financial condition, results of operations and liquidity. Entergy and its subsidiaries would also likely be required to pay a higher interest rate in future financings, and their potential pool of investors and funding sources could decrease. In addition, adverse ratings actions could prompt fuel and power suppliers of the domestic utility companies to require accelerated payments or to reduce or eliminate credit lines. Lastly, in the event of a decrease in Entergy's credit rating to below investment grade, Entergy may be required to replace in a short period of time the Entergy guarantees relating to the Non-Utility Nuclear and Competitive Retail Services businesses with cash or letters of credit under some of the agreements to sell power. For further information regarding the impact of the hurricanes and increases in natural gas and power prices to Entergy's liquidity position, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - "Liquidity Effects of Hurricane Katrina and Hurricane Rita," and - Significant Factors and Known Trends - "Market and Credit Risks" - - "Commodity Price Risk" - "Power Generation."
(Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans and System Energy)
Entergy Corporation's investment in Entergy New Orleans and advances under the DIP credit agreement are at risk; the domestic utility companies' pre-petition receivables due from Entergy New Orleans are also at risk for non-payment.
Because of the effects of Hurricane Katrina, Entergy New Orleans filed a voluntary petition for reorganization under the provisions of Chapter 11 of the United States Bankruptcy Code. Entergy Corporation owns 100 percent of the common stock of Entergy New Orleans, has continued to supply general and administrative services, and has provided debtor-in-possession financing to Entergy New Orleans and, accordingly, believes these factors represent significant influence over Entergy New Orleans. Because of the uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, however, Entergy Corporation has deconsolidated Entergy New Orleans from its consolidated financial statements and reflects Entergy New Orleans' financial results under the equity method of accounting retroactive to January 1, 2005. Entergy Corporation reviewed the carrying value of its investment in Entergy New Orleans and determined that as of December 31, 2005, no impairment had occurred because management believes that cost recovery is probable. Entergy Corporation will continue to assess the carrying value of its investment in Entergy New Orleans as developments occur in Entergy New Orleans' recovery efforts. Because Entergy New Orleans has not gone through the regulatory process regarding storm costs and losses, however, there is an element of risk regarding recovery, and Entergy is unable to predict with certainty the degree of success Entergy New Orleans may have in its recovery initiatives, the amount of restoration costs and incremental losses it may ultimately recover, the timing of such recovery, or the return of customer load to New Orleans to support any such cost recovery.
Additionally, the payment by Entergy New Orleans of its $47 million of pre-petition accounts payables to the other domestic utility companies and the payment of Entergy Corporation's advances to Entergy New Orleans made under the DIP credit agreement are subject to the risks inherent in Entergy New Orleans' recovery efforts. Since Entergy is unable to predict with certainty the degree of success Entergy New Orleans will have in its cost recovery initiatives, Entergy Corporation's equity investment in Entergy New Orleans, Entergy's subsidiaries' pre-petition accounts receivables from Entergy New Orleans and Entergy Corporation's advances to Entergy New Orleans under the DIP credit agreement are at risk. For further information regarding Entergy New Orleans' bankruptcy and DIP credit agreement, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -"Entergy New Orleans Bankruptcy," and - Liquidity and Capital Resources -"Debtor-in-Possession Credit Agreement."
(Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans and System Energy)
The electric and gas rates that the domestic utility companies and System Energy are allowed to charge their customers are largely determined outside their control by the actions of regulators.
The rates that the domestic utility companies and System Energy charge for their services are an important item influencing the financial condition, results of operations and liquidity of Entergy and the domestic utility companies. The domestic utility companies are heavily regulated, and the electric and gas rates that the domestic utility companies and System Energy are allowed to charge their customers are determined, in large part, outside of their control by governmental organizations, including the APSC, the City Council, the LPSC, the MPSC, the PUCT, and the FERC. Decisions made by these regulators could have a material impact on the results of operations, financial condition and liquidity of Entergy, the domestic utility companies and System Energy. For information regarding rate case proceedings, reference is made to Note 2 "RATE AND REGULATORY MATTERS" to Entergy's consolidated financial statements and the respective financial statements of the domestic uti lity companies and System Energy and Part 1 Item 1 of Entergy's Business - U.S. Utility -"Retail Rate Regulation."
The domestic utility companies' fuel and purchased power costs also are recovered from customers, subject to regulatory scrutiny. This regulatory risk represents the domestic utility companies' largest potential exposure to price changes in the commodity markets. On occasion, when the level of the fuel and purchased power costs rise very dramatically, some of the domestic utility companies might agree to defer recovery of a portion of that month's fuel and purchased power costs for recovery at a later date, which could increase the near-term working capital requirements of the domestic utility companies. In addition, from time to time, the domestic utility companies' regulators have initiated and, in the future, may initiate proceedings to investigate the adequacy and operation of the fuel recovery clauses of the domestic utility companies as well as their fuel and purchased power procurement practices. For further information regarding the regulatory proce edings for fuel and purchased power cost recovery, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - - "State and Local Rate Regulation and Fuel Cost Recovery" and Note 2 "RATE AND REGULATORY MATTERS" to Entergy's consolidated financial statements and the respective financial statements of the domestic utility companies and System Energy.
The domestic utility companies have historically engaged in the coordinated planning, construction and operation of generating and transmission facilities under the terms of a FERC rate schedule called the System Agreement. The LPSC and the City Council commenced a proceeding in 2001 at the FERC that requests amendments to the System Agreement, particularly with respect to achieving equalization of the total production costs of each of the domestic utility companies. In December 2005 the FERC issued its Order on Rehearing, which affirmed its decision issued in June 2005 in the System Agreement litigation. Entergy will be required to file with FERC a compliance filing to implement the provisions of the FERC December 2005 Order. For information relating to the System Agreement Proceedings, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - "Federal Regulation"- System Agreement Proceedings. Entergy and the domestic utility companies believe that any changes in the allocation of production costs resulting from the FERC's decision in the System Agreement proceeding and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before the APSC and retail regulators of the other domestic utility companies. Although the outcome and timing of the FERC, APSC and other proceedings cannot be predicted at this time, Entergy and the domestic utility companies do not believe that the ultimate resolution of these proceedings will have a material effect on the financial condition or results of operations of Entergy or the domestic utility companies.
(Entergy Corporation and Entergy Gulf States)
Delays and uncertainty relating to the start of retail open access in Texas for Entergy Gulf States, the implementation of recent legislation in Texas and adverse decisions in related regulatory proceedings at the PUCT could have a material adverse effect on Entergy Gulf States' and Entergy's financial condition, results of operations and liquidity.
The PUCT has delayed implementation of retail open access in Entergy Gulf States' Texas service territory. In addition, the PUCT has not approved a base rate increase for Entergy Gulf States since 1991. In June 2005, the Texas legislature enacted a statute that, among other things, authorizes Entergy Gulf States to proceed with jurisdictional separation into two vertically integrated utilities, one subject solely to retail jurisdiction of the LPSC and one subject solely to the retail jurisdiction of the PUCT. In addition, the statute provides (i) for Entergy Gulf States to file a transition to competition plan no later than January 1, 2007 and (ii) that Entergy Gulf States' rates are subject to cost-of-service regulation until retail customer choice is implemented.
Extended delay and uncertainty with respect to the start of retail open access in Texas (including uncertainty as to the ultimate form of Entergy Gulf States' related business separation plan, particularly in conjunction with any jurisdictional separation of Entergy Gulf States as described below), the implementation of the Texas legislation, including implementation of a transition cost recovery rider, and adverse decisions in proceedings at the PUCT (whether related to the Texas legislation or otherwise), could have a material adverse effect on Entergy Gulf States' and Entergy's financial condition, results of operations, and liquidity. For additional information regarding Entergy Gulf States' regulatory proceedings in Texas, including the implementation of purchased power capacity and transition cost recovery riders, reference is made to Note 2 "RATE AND REGULATORY MATTERS" - Regulatory Assets - "Deferred Fuel Costs,"- Retail Rate Proceedings - "Filings with the PUCT and Texas Cities (Entergy Gulf States)," and "Electric Industry Restructuring and the Continued Application of SFAS 71" to Entergy's consolidated financial statements and the respective financial statements of the domestic utility companies and System Energy.
(Entergy Corporation and Entergy Gulf States)
The proposed jurisdictional separation of Entergy Gulf States into two separate vertically integrated utilities could, depending on the structure and terms of the separation, have a material adverse effect on the financial condition, results of operations and liquidity of Entergy Gulf States.
Reference is made to ENTERGY GULF STATES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - "Transition to Retail Competition"- Jurisdictional Separation Plan, for information relating to the proposed jurisdictional separation of Entergy Gulf States. Any jurisdictional separation of Entergy Gulf States resulting from the LPSC proceedings would affect Entergy Gulf States' financial condition, results of operations and liquidity, particularly in conjunction with any additional restructuring of the company that may be ordered by the PUCT with respect to a jurisdictional separation or upon the implementation of retail open access in Texas. Depending on the structure and terms of the separation, such a separation could have a material adverse effect on Entergy Gulf States.
(Entergy Corporation)
The nuclear power generation plants owned by Entergy's Non-Utility Nuclear business will be exposed to price risk to the extent they must compete for the sale of energy and capacity.
Entergy and its non-utility nuclear business do not have retail rate recovery for its investment in its unregulated generating plants. The sale of capacity and energy from the power generation plants owned by this business, unless otherwise contracted, is subject to the fluctuation of market power prices. For information regarding Entergy's Non-Utility Nuclear business and the amount of output currently sold forward, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - "Market and Credit Risks" - "Commodity Price Risk."
Entergy's Non-Utility Nuclear business is pursuing opportunities to extend existing PPAs and to enter into new PPAs with other parties for portions of its unsold planned generation. To the extent that the electricity generated by these plants is not under contract to be sold, the revenues and results of operations of Entergy's Non-Utility Nuclear business, and whether it recovers its investment and operating costs from these plants, will generally depend on the market prices that can be obtained for energy and capacity.
Among the factors that could affect market prices for electricity and fuel, all of which are beyond Entergy's control to a significant degree, are:
(Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans)
Entergy and the domestic utility companies face uncertainty with respect to the domestic utility companies' independent coordinator of transmission proposal at the FERC and the outcome of other related FERC and state and local regulatory proceedings relating to transmission.
The domestic utility companies face uncertainties with respect to whether their regulators will approve their enhanced ICT proposal and the outcome of the AFC proceedings at the FERC. An adverse outcome in these matters could materially affect the financial condition, results of operations and liquidity of Entergy and the domestic utility companies. Reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - "Federal Regulation" - "Independent Coordinator of Transmission" and "Available Flowgate Capacity Proceeding" for disclosure regarding the FERC ICT and AFC proceedings and the APSC proceedings to review the Entergy ICT proposal.
(Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana and System Energy)
Ownership and operation of nuclear facilities creates business, financial and waste disposal risks.
The domestic utility companies, System Energy, and Entergy's Non-Utility Nuclear subsidiaries own and operate ten nuclear power generating units and the shutdown Indian Point 1 nuclear reactor. These companies, therefore, are subject to the risks arising from owning and operating nuclear generating facilities. These include risks from the use, storage, handling, and disposal of high-level and low-level radioactive materials, limitations on the amounts and types of insurance commercially available for losses in connection with nuclear operations, the costs of securing the facilities against possible terrorist attacks, unscheduled outages due to equipment and other problems, and technological and financial uncertainties related to adhering to environmental law requirements associated with plant operations, as well as the decommissioning of nuclear plants at the end of their licensed lives, including the sufficiency of funds in decommissioning trusts. The domestic utility companies, Syst em Energy, and the Non-Utility Nuclear subsidiaries maintain decommissioning trusts and external insurance coverage to minimize the financial exposure to some of these risks; however, it is possible that losses could exceed the amount of their insurance coverage. In the event of an unanticipated early shut-down of any of the nuclear plants owned and operated by the domestic utility companies, System Energy, and/or the Non-Utility Nuclear subsidiaries, Entergy may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning.
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generating facilities. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear generating unit. In the event of noncompliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Although Entergy has no reason to anticipate a serious nuclear incident at any of the nuclear generating units owned and operated by its subsidiaries, if an incident did occur, it could materially and adversely affect the business, financial position, results of operations and liquidity of Entergy, the domestic utility companies and System Energy.
In addition, concerns are being expressed in public forums about the safety of nuclear generating units and nuclear fuel, in particular in the northeastern United States, which is where the Non-Utility Nuclear generating units are located. These concerns have led to, and are expected to continue to lead to, various proposals to federal regulators as well as governing bodies in some localities where Entergy's subsidiaries own nuclear generating units for legislative and regulatory changes that could lead to the shut-down of nuclear units, denial of license extension applications, municipalization of nuclear units, restrictions on nuclear units as a result of unavailability of sites for spent nuclear fuel disposal, or other adverse effects on owning and operating nuclear generating units. Entergy vigorously responds to these concerns and proposals. However, if any of the proposals relating to legislative and regulatory changes becomes effective, it could have a material adverse effect on Ent ergy's results of operations, financial condition and liquidity. For additional information ENTERGY CORPORATION AND ITS SUBSIDIARIES - - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - "Nuclear Decommissioning Costs."
(Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The litigation environment in the states in which certain Entergy subsidiaries operate poses a significant risk to those businesses.
Entergy and its subsidiaries are involved in the ordinary course of business in a number of lawsuits involving employment, commercial, asbestos, hazardous material, ratepayer, and injuries and damages issues, among other matters. States in which the domestic utility companies operate, in particular Louisiana, Mississippi and Texas, have proven to be unusually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy and its subsidiaries use legal and appropriate means to contest litigation threatened or filed against them, but the litigation environment in these states poses a significant business risk.
(Entergy Louisiana)
Entergy Louisiana, LLC will not join in filing the Entergy consolidated federal income tax return. Because it will file as a separate taxpayer, Entergy Louisiana, LLC's financial condition could be adversely affected.
Entergy Louisiana, LLC will not join in the filing of Entergy's consolidated federal income tax return, although it will be consolidated for financial reporting purposes. Entergy Louisiana, LLC will file a separate federal income tax return, will pay federal income taxes on a stand-alone basis, and will not be a party to Entergy's intercompany tax allocation agreement. Entergy Louisiana, LLC may make elections for tax purposes that may differ from those made by the Entergy consolidated tax group, which may result in Entergy Louisiana, LLC having more exposure to tax liability than it would have had, had it been included in the Entergy consolidated tax return, thereby adversely affecting Entergy Louisiana, LLC's financial condition. For information regarding the Entergy Louisiana corporate restructuring, see ENTERGY LOUISIANA HOLDINGS, INC. and ENTERGY LOUISIANA, LLC - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends -"Entergy Louisiana Corporate Restructuring."
(System Energy)
System Energy's business consists of the ownership and operation of a single nuclear generating facility, and it is dependent on affiliated companies for all of its revenues.
System Energy's operating revenues are derived from the allocation of the capacity, energy and related costs associated with its 90% ownership/leasehold interest in Grand Gulf 1. Charges under the Unit Power Sales Agreement are paid by the domestic utility companies as consideration for their respective entitlements to receive capacity and energy and are payable on a full cost-of-service basis so long as Grand Gulf 1 remains in commercial operation. The useful economic life of Grand Gulf 1 is finite and is limited by the terms of its operating license, which is currently due to expire on November 1, 2024. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. System Energy's financial condition depends both on the receipt of payments from the domestic utility companies under the Unit Power Sales Agreement and on the continued commercial operation of Grand Gulf 1. For further information, reference is made to SYSTEM ENERGY RESOURC ES, INC. - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS. For further information regarding the Unit Power Sales Agreement, see Part I. Item 1. - - Entergy's Business - System Energy and Related Agreements - "Federal Regulation."
UNRESOLVED STAFF COMMENTS
Neither Entergy Corporation nor any of its subsidiaries that are subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 received any written comments regarding any of their periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of their 2005 fiscal year and that remain unresolved.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
2005 Compared to 2004
Net income increased $32.4 million due to higher net revenue and other income, partially offset by higher other operation and maintenance expenses.
2004 Compared to 2003
Net income increased $16.2 million due to lower other operation and maintenance expenses, a lower effective income tax rate for 2004 compared to 2003, and lower interest charges. The increase was partially offset by lower net revenue.
Net Revenue
2005 Compared to 2004
Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2005 to 2004.
Amount |
||
(In Millions) |
||
2004 net revenue |
$978.4 |
|
Volume/weather |
43.6 |
|
Deferred fuel cost revisions |
15.5 |
|
Capacity costs |
(11.3) |
|
Net wholesale revenue |
(14.4) |
|
Other |
(1.1) |
|
2005 net revenue |
$1,010.7 |
The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather compared to 2004. Billed electricity usage increased a total of 1,270 GWh in all sectors.
The deferred fuel cost revisions variance is primarily due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue in the first quarter of 2004 by $11.5 million. The remainder of the variance is due to the 2004 energy cost recovery true-up, made in the first quarter of 2005, which increased net revenue by $4.0 million.
The capacity costs variance is primarily due to higher capacity related costs including the revision of reserve equalization payments between Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations.
The net wholesale revenue variance is primarily due to lower margins on wholesale contracts and provisions for refunds related to wholesale formula rate and contract disputes.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to an increase of $99 million in fuel cost recovery revenues due to increases in the energy cost recovery rider effective April 2005 and October 2005 (fuel cost recovery revenues are discussed in Note 2 to the domestic utility companies and System Energy financial statements). The increase in volume/weather, discussed above, also contributed to the increase.
Fuel and purchased power expenses increased primarily due to an increase in the market price of purchased power, partially offset by decreased deferred fuel expense resulting primarily from higher fuel and purchased power costs. See Note 2 to the domestic utility companies and System Energy financial statements for a discussion of the proposed recovery of Entergy Arkansas' deferred fuel costs.
Other regulatory charges increased primarily due:
2004 Compared to 2003
Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2004 to 2003.
Amount |
||
(In Millions) |
||
2003 net revenue |
$998.7 |
|
Deferred fuel cost revisions |
(16.9) |
|
Other |
(3.4) |
|
2004 net revenue |
$978.4 |
Deferred fuel cost revisions include the difference between the estimated deferred fuel expense and the actual calculation of recoverable fuel expense, which occurs on an annual basis. Deferred fuel cost revisions decreased net revenue due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue by $11.5 million. The remainder of the variance is due to the 2002 energy cost recovery true-up, made in the first quarter of 2003, which increased net revenue in 2003.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to:
Fuel and purchased power expenses increased primarily due to increased recovery of deferred fuel and purchased power costs primarily due to an increase in April 2004 in the energy cost recovery rider and the true-ups to the 2003 and 2002 energy cost recovery rider filings.
Other regulatory credits decreased primarily due to the over-recovery of Grand Gulf costs due to an increase in the Grand Gulf rider effective January 2004. The rider has no material effect on net income due to the refund and/or recovery through annual adjustments to the rider
Other Income Statement Variances
2005 Compared to 2004
Other operation and maintenance expenses increased primarily due to an increase of $15.8 million in payroll and benefits costs, partially offset by a decrease of $2.7 million in information technology costs and a decrease of $2.4 million related to proceeds received from the radwaste settlement discussed below in "Significant Factors and Known Trends - Central States Compact Claim."
Other income increased primarily due to:
2004 Compared to 2003
Other operation and maintenance expenses decreased primarily due to voluntary severance accruals of $31.8 million in 2003. The decrease was partially offset by the following:
Interest charges decreased primarily due to the refinancing of First Mortgage Bonds in mid-2003.
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 35.7%, 38.5%, and 45.5%, respectively. See Note 3 to the domestic utility companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Thousands) |
|||||||
Cash and cash equivalents at beginning of period |
$89,744 |
$8,834 |
$95,513 |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
507,711 |
539,012 |
364,088 |
||||
Investing activities |
(488,718) |
(292,946) |
(333,230) |
||||
Financing activities |
(99,344) |
(165,156) |
(117,537) |
||||
Net increase (decrease) in cash and cash equivalents |
(80,351) |
80,910 |
(86,679) |
||||
Cash and cash equivalents at end of period |
$9,393 |
$89,744 |
$8,834 |
Operating Activities
Cash flow from operations decreased $31.3 million in 2005 compared to 2004 primarily due to income tax payments made in 2005 compared to income tax refunds received in 2004, partially offset by the timing of the collection of receivables from customers and the timing of payments to vendors.
Cash flow from operations increased $174.9 million in 2004 compared to 2003 primarily due to income tax refunds received in 2004 and increased recovery of deferred fuel costs.
In addition to minimal restoration costs caused by Hurricanes Katrina and Rita, the storms have had other impacts that have affected Entergy Arkansas' liquidity position. The Entergy New Orleans bankruptcy caused fuel and power suppliers to increase their scrutiny of the remaining domestic utility companies with the concern that one of them could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power prices, thereby increasing Entergy Arkansas' ongoing costs, which consumed available credit lines more quickly and in some instances required the posting of additional collateral. Entergy managed through these events thus far, adequately supplied Entergy Arkansas with fuel and power, and as a result of s teps taken by it regarding its storm costs expects to have adequate liquidity and credit to continue supplying Entergy Arkansas with fuel and power.
In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi rea lized $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million, Entergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy New Orleans' share is $27 million, and System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.
Investing Activities
Net cash flow used in investing activities increased $195.8 million in 2005 compared to 2004 primarily due to:
The increases were partially offset by money pool activity.
The decrease of $40.3 million in net cash used in investing activities in 2004 compared to 2003 was primarily due to a decrease in construction expenditures resulting from less transmission upgrade work requested by merchant generators in 2004 combined with lower spending on customer support projects in 2004. This decrease was partially offset by money pool activity.
Financing Activities
Net cash flow used in financing activities decreased $65.8 million in 2005 compared to 2004 primarily due to money pool activity and a decrease of $21.7 million in common stock dividends, partially offset by the net retirement of $54.8 million of long-term debt in 2005.
The increase of $47.6 million in net cash used in financing activities in 2004 compared to 2003 was primarily due to money pool activity, partially offset by the net redemption of $2.4 million of long-term debt in 2004 compared to $109.3 million in 2003.
See Note 5 to the domestic utility companies and System Energy financial statements for details on long-term debt.
Capital Structure
Entergy Arkansas' capitalization is balanced between equity and debt, as shown in the following table. The decrease in the debt to capital percentage as of December 31, 2005 is primarily the result of an increase in shareholders' equity due to an increase in retained earnings.
|
|
December 31, |
|
December 31, |
|
|
|
|
|
Net debt to net capital |
|
47.4% |
|
48.5% |
Effect of subtracting cash from debt |
|
0.1% |
|
1.6% |
Debt to capital |
|
47.5% |
|
50.1% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas' financial condition.
Uses of Capital
Entergy Arkansas requires capital resources for:
Following are the amounts of Entergy Arkansas' planned construction and other capital investments, existing debt and lease obligations, and other purchase obligations:
|
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
after 2010 |
|
Total |
|
|
(In Millions) |
||||||||
Planned construction and |
|
|
|
|
|
|
|
|
|
|
capital investment (1) |
|
$245 |
|
$557 |
|
N/A |
|
N/A |
|
$802 |
Long-term debt |
|
$- |
|
$- |
|
$100 |
|
$1,198 |
|
$1,298 |
Capital lease payments |
|
$6 |
|
$5 |
|
$- |
|
$2 |
|
$13 |
Operating leases |
|
$23 |
|
$37 |
|
$19 |
|
$51 |
|
$130 |
Purchase obligations (2) |
|
$557 |
|
$992 |
|
$936 |
|
$2,422 |
|
$4,907 |
Nuclear fuel lease obligations (3) |
|
$42 |
|
$50 |
|
N/A |
|
N/A |
|
$92 |
(1) |
Includes approximately $176 to $190 million annually for maintenance capital, which is planned spending on routine capital projects that are necessary to support reliability of service, equipment or systems and to support normal customer growth. |
(2) |
Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Arkansas, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the domestic utility companies and System Energy financial statements. |
(3) |
It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations. |
In addition to these contractual obligations, Entergy Arkansas expects to contribute $114.5 million to its pension plans and $17.8 million to other postretirement plans in 2006.
The planned capital investment estimate for Entergy Arkansas also reflects capital required to support existing business and customer growth. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints, market volatility, economic trends, environmental compliance, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the domestic utility companies and System Energy financial statements.
As a wholly-owned subsidiary, Entergy Arkansas pays dividends to Entergy Corporation from its earnings at a percentage determined monthly. Entergy Arkansas' long-term debt indentures restrict the amount of retained earnings available for the payment of cash dividends or other distributions on its common and preferred stock. As of December 31, 2005, Entergy Arkansas had restricted retained earnings unavailable for distribution to Entergy Corporation of $396.4 million.
Sources of Capital
Entergy Arkansas' sources to meet its capital requirements include:
Entergy Arkansas issued long-term debt in 2005 as follows:
Issue Date |
Description |
Maturity |
Amount |
|||
(In Thousands) |
||||||
January 2005 |
5.66% Series |
February 2025 |
$175,000 |
|||
March 2005 |
5.00% Series |
January 2021 |
45,000 |
|||
May 2005 |
4.50% Series |
June 2010 |
100,000 |
|||
$320,000 |
Entergy Arkansas redeemed long-term debt in 2005 as follows:
Retirement Date |
|
|
|
|||
(In Thousands) |
||||||
February 2005 |
7.00% Series |
October 2023 |
$175,000 |
|||
April 2005 |
6.25% Series |
January 2021 |
45,000 |
|||
July 2005 |
6.125% Series |
July 2005 |
100,000 |
|||
$320,000 |
The March 2005 issuance and the April 2005 retirement are not shown on the cash flow statement because the proceeds from the issuance were placed in a trust and never held as cash by Entergy Arkansas.
In September 2005, Entergy Arkansas purchased its $47 million of 5.05% Series Pope County bonds from the holders, pursuant to a mandatory tender provision, and has not remarketed the bonds at this time.
Entergy Arkansas may refinance or redeem debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common and preferred stock issuances by Entergy Arkansas require prior regulatory approval. Preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and other agreements. Entergy Arkansas has sufficient capacity under these tests to meet its foreseeable capital needs.
In April 2005, Entergy Arkansas renewed its 364-day credit facility through April 30, 2006. In May 2005, Entergy Louisiana entered into a separate credit facility with the same lender. Entergy Arkansas and Entergy Louisiana can each borrow up to $85 million under their respective credit facilities, but at no time can the total amount borrowed under these facilities by the two companies combined exceed $85 million. There were no outstanding borrowings under the Entergy Arkansas credit facility as of December 31, 2005. The Entergy Louisiana facility had $40 million in outstanding borrowings as of December 31, 2005.
Entergy Arkansas' receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years:
2005 |
2004 |
2003 |
2002 |
|||
(In Thousands) |
||||||
($27,346) |
$23,561 |
($69,153) |
$4,279 |
See Note 4 to the domestic utility companies and System Energy financial statements for a description of the money pool.
Short-term borrowings by Entergy Arkansas, including borrowings under the money pool, are limited to an amount authorized by the FERC, which is $250 million. FERC has jurisdiction over these short-term borrowings effective with the repeal of PUHCA 1935 on February 8, 2006 and has issued an order effective through March 31, 2008. See Note 4 to the domestic utility companies and System Energy financial statements for further discussion of Entergy Arkansas' short-term borrowing limits.
Significant Factors and Known Trends
Utility Restructuring
In April 1999, the Arkansas legislature enacted Act 1556, the Arkansas Electric Consumer Choice Act, providing for competition in the electric utility industry through retail open access. In December 2001, the APSC recommended to the Arkansas General Assembly that legislation be enacted during the 2003 legislative session to either repeal Act 1556 or further delay retail open access until at least 2010. In February 2003, the Arkansas legislature voted to repeal Act 1556 and the repeal was signed into law by the governor.
Federal Regulation
System Agreement Proceedings
See "System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the proceeding at FERC involving the System Agreement and of other related proceedings.
Transmission
See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Interconnection Orders
See "Interconnection Orders" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Available Flowgate Capacity Proceeding
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Energy Policy Act of 2005
See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Central States Compact Claim
The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska s eeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid $145 million, including interest, to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $19.4 million to Entergy Louisiana. The proceeds were first applied to the existing regulatory asse t, with the remainder causing an increase in pre-tax earnings of $7.4 million at Entergy Arkansas.
Market and Credit Risks
Entergy Arkansas has certain market and credit risks inherent in its business operations. Market risks represent the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement.
Interest Rate and Equity Price Risk - Decommissioning Trust Funds
Entergy Arkansas' nuclear decommissioning trust funds are exposed to fluctuations in equity prices and interest rates. The NRC requires Entergy Arkansas to maintain trusts to fund the costs of decommissioning ANO 1 and ANO 2. The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the ANO trust funds because of the application of regulatory accounting principles. The decommissioning trust funds are discussed more thoroughly in Notes 1, 8, and 12 to the domestic utility companies and System Energy financial statements.
State and Local Rate Regulation
The rates that Entergy Arkansas charges for its services are an important item influencing Entergy Arkansas' financial position, results of operations, and liquidity. Entergy Arkansas is closely regulated and the rates charged to its customers are determined in regulatory proceedings. The APSC, a governmental agency, is primarily responsible for approval of the rates charged to customers. There are no base rate cases pending at this time.
Entergy Arkansas completed recovery in January 2006 of transition to competition costs through an $8.5 million transition cost recovery rider approved by the APSC that has been in effect since October 2004.
Entergy Arkansas' fuel costs recovered from customers are also subject to regulatory scrutiny. Refer to Note 2 to the domestic utility companies and System Energy financial statements for fuel recovery and retail rate proceedings.
Nuclear Matters
Entergy Arkansas owns and operates, through an affiliate, the ANO 1 and ANO 2 nuclear power plants. Entergy Arkansas is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks from the use, storage, handling and disposal of high-level and low-level radioactive materials, limitations on the amounts and types of insurance commercially available for losses in connection with nuclear operations, and technological and financial uncertainties related to decommissioning nuclear plants at the end of their licensed lives, including the sufficiency of funds in decommissioning trusts. In the event of an unanticipated early shutdown of either ANO 1 or ANO 2, Entergy Arkansas may be required to file with the APSC a rate mechanism to provide additional funds or credit support to satisfy regulatory requirements for decommissioning.
The nuclear industry continues to address susceptibility to stress corrosion cracking of certain materials associated with components within the reactor coolant system. The issue is applicable to ANO and is managed in accordance with industry standard practices and guidelines. Several major modifications to the ANO units have been implemented, with the most recent project being the installation of new steam generators and a new reactor vessel head in the fall of 2005 for ANO 1. A replacement reactor vessel head is being fabricated for ANO 2 at this time. Routine inspections of the ANO 2 reactor vessel head have identified no significant material degradation issues for that component, and will continue at planned refueling outages.
Entergy Arkansas is planning the replacement of the ANO 2 pressurizer vessel in the fall of 2006 during a planned refueling outage. The replacement project is factored into the 2006 capital spending plan, and is economically justified as a better alternative than repairing flaws in the susceptible materials within that major component.
Environmental Risks
Entergy Arkansas' facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Arkansas is in substantial compliance with environmental regulations currently applicable to its facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of Entergy Arkansas' financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements could produce estimates that would have a material effect on the presentation of Entergy Arkansas' financial position or results of operations.
Nuclear Decommissioning Costs
Regulations require Entergy Arkansas to decommission the ANO 1 and ANO 2 nuclear power plants after the facilities are taken out of service, and money is collected and deposited in trust funds during the facilities' operating lives in order to provide for this obligation. Entergy Arkansas conducts periodic decommissioning cost studies (typically updated every five years) to estimate the costs that will be incurred to decommission the facilities. The following key assumptions have a significant effect on these estimates:
Through 2001, Entergy Arkansas collected the projected costs of decommissioning ANO 1 and ANO 2 through rates charged to customers. Now, based on assumptions approved by the APSC, including the ANO 1 and 2 license extensions, which significantly extends the earnings period, and the sufficiency of previously collected funds, Entergy Arkansas is not collecting additional funds to decommission ANO 1 and ANO 2 in its current rates. The assumptions will be reviewed annually and reflected in Entergy Arkansas' filing of its annual determination of the nuclear decommissioning rate rider. The amounts that were collected through rates, which were based upon decommissioning cost studies, were deposited in decommissioning trust funds.
SFAS 143
Entergy Arkansas implemented SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. Nuclear decommissioning costs comprise substantially all of Entergy Arkansas' asset retirement obligations, and the measurement and recording of Entergy Arkansas' decommissioning obligations outlined above changed significantly with the implementation of SFAS 143. The most significant differences in the measurement of these obligations are outlined below:
The net effect of implementing this standard for Entergy Arkansas was recorded as a regulatory asset, with no resulting impact on Entergy Arkansas' net income. Entergy Arkansas recorded this regulatory asset because its existing rate mechanism is based on the original or historical cost standard that allows Entergy Arkansas to recover all ultimate costs of decommissioning existing assets from current and future customers. Upon implementation, assets and liabilities increased by $532 million in 2003 as a result of recording the asset retirement obligation at its fair value as determined under SFAS 143, increasing total utility plant by $106 million, reducing accumulated depreciation by $252 million, and recording the related regulatory asset of $174 million.
In the first quarter of 2004, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for ANO 1 and 2 as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of the plants will begin. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.
In the third quarter of 2005, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability for ANO 2 in accordance with the receipt of approval by the NRC of Entergy Arkansas' application for a life extension for the unit. The revised estimate resulted in an $87.2 million reduction in its decommissioning liability, offset by a corresponding reduction in the related regulatory asset.
Unbilled Revenue
As discussed in Note 1 to the domestic utility companies and System Energy financial statements, Entergy Arkansas records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estimate of unbilled customer usage, and assumptions regard ing price.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified, defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed income securities and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2004, 2005, and 2006.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Qualified Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$2,055 |
|
$23,000 |
Rate of return on plan assets |
|
(0.25%) |
|
$1,054 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$972 |
|
$5,653 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
0.25% |
|
$663 |
|
$3,998 |
|
Discount rate |
(0.25%) |
|
$396 |
|
$5,138 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 may have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
Total qualified pension cost for Entergy Arkansas in 2005 was $24.7 million. Entergy Arkansas anticipates 2006 qualified pension cost to increase to $26.2 million. Entergy Arkansas contributed $4.0 million to its qualified pension plans in 2005, and under current law, projects 2006 contributions will be $114 million. This projection may change pending passage of pension reform legislation. In January 2006, $11.8 million was funded. $10 million of the amount funded in January 2006 was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act. The rise in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004.
Entergy Arkansas' qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, Entergy Arkansas was required to recognize an additional minimum liability as prescribed by SFAS 87 at December 31, 2005 and 2004. At December 31, 2005, Entergy Arkansas increased its qualified pension additional minimum liability to $146 million from $81 million at December 31, 2004. Entergy Arkansas decreased its intangible asset for the unrecognized prior service cost to $7.6 million at December 31, 2005 from $10.3 million at December 31, 2004. Entergy Arkansas also increased the regulatory asset to $138 million at December 31, 2005 from $70.8 million at December 31, 2004. Net income for 2005, 2004, and 2003 was not impacted.
Total postretirement health care and life insurance benefit costs for Entergy Arkansas in 2005 were $13.7 million, including $5 million in savings due to the estimated effect of future Medicare Part D subsidies. Entergy Arkansas expects 2006 postretirement health care and life insurance benefit costs to approximate $15.4 million, including $6.2 million in savings due to the estimated effect of future Medicare Part D subsidies. The increase in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.9%) and an increase in the health care cost trend rate used to calculate benefit obligations.
New Accounting Pronouncements
In December 2005, Entergy Arkansas implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy Arkansas' obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. The net effect of implementing FIN 47 for Entergy Arkansas was recorded as a regulatory asset, with no resulting effect on Entergy Arkansas' net income. Entergy Arkansas recorded this regulatory asset because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future custo mers. Upon implementation of FIN 47 in December 2005, assets and liabilities increased by $5.4 million as a result of recording the asset retirement obligation at its fair value as determined under FIN 47, increasing utility plant by $0.4 million, increasing accumulated depreciation by $0.3 million, and recording the related regulatory asset of $5.3 million.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Arkansas, Inc.:
We have audited the accompanying balance sheets of Entergy Arkansas, Inc. as of December 31, 2005 and 2004, and the related statements of income, retained earnings, and cash flows (pages 177 through 182 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Arkansas, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Arkansas, Inc. adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY ARKANSAS, INC. | ||||||
INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $1,789,055 | $1,653,145 | $1,589,670 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 22,151 | 210,394 | 153,866 | |||
Purchased power | 755,277 | 484,849 | 476,447 | |||
Nuclear refueling outage expenses | 27,892 | 24,568 | 23,638 | |||
Other operation and maintenance | 392,777 | 384,424 | 402,108 | |||
Decommissioning | 31,205 | 32,902 | 35,887 | |||
Taxes other than income taxes | 39,011 | 35,848 | 37,385 | |||
Depreciation and amortization | 203,836 | 206,926 | 202,497 | |||
Other regulatory charges (credits) - net | 959 | (20,501) | (39,347) | |||
TOTAL | 1,473,108 | 1,359,410 | 1,292,481 | |||
OPERATING INCOME | 315,947 | 293,735 | 297,189 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 11,614 | 11,737 | 12,153 | |||
Interest and dividend income | 22,941 | 10,298 | 9,790 | |||
Miscellaneous - net | (2,408) | (6,354) | (4,332) | |||
TOTAL | 32,147 | 15,681 | 17,611 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 78,527 | 79,521 | 87,666 | |||
Other interest - net | 6,465 | 4,909 | 3,555 | |||
Allowance for borrowed funds used during construction | (8,482) | (6,288) | (7,726) | |||
TOTAL | 76,510 | 78,142 | 83,495 | |||
INCOME BEFORE INCOME TAXES | 271,584 | 231,274 | 231,305 | |||
Income taxes | 96,949 | 89,064 | 105,296 | |||
NET INCOME | 174,635 | 142,210 | 126,009 | |||
Preferred dividend requirements and other | 7,776 | 7,776 | 7,776 | |||
EARNINGS APPLICABLE TO | ||||||
COMMON STOCK | $166,859 | $134,434 | $118,233 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY ARKANSAS, INC. | ||||||
STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $174,635 | $142,210 | $126,009 | |||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||
Reserve for regulatory adjustments | (3,231) | 3,099 | 1,739 | |||
Other regulatory charges (credits) - net | 959 | (20,501) | (39,347) | |||
Depreciation, amortization, and decommissioning | 235,041 | 239,828 | 238,384 | |||
Deferred income taxes and investment tax credits | 102,446 | 65,847 | 48,357 | |||
Changes in working capital: | ||||||
Receivables | 6,495 | (63,003) | (33,895) | |||
Fuel inventory | (8,044) | 2,424 | 4,159 | |||
Accounts payable | 64,558 | 28,282 | (28,538) | |||
Taxes accrued | (33,250) | 137,767 | 48,791 | |||
Interest accrued | (2,169) | (48) | (6,348) | |||
Deferred fuel costs | 773 | 6,880 | (46,333) | |||
Other working capital accounts | (13,155) | 4,753 | (79,331) | |||
Provision for estimated losses and reserves | (5,904) | (5,172) | 8,686 | |||
Changes in other regulatory assets | 71,932 | 37,668 | (54,745) | |||
Other | (83,375) | (41,022) | 176,500 | |||
Net cash flow provided by operating activities | 507,711 | 539,012 | 364,088 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (317,112) | (270,427) | (334,556) | |||
Allowance for equity funds used during construction | 11,614 | 11,737 | 12,153 | |||
Nuclear fuel purchases | (72,290) | (8,101) | (60,685) | |||
Proceeds from sale/leaseback of nuclear fuel | 72,290 | 8,101 | 60,685 | |||
Proceeds from nuclear decommissioning trust fund sales | 203,772 | 142,508 | 147,021 | |||
Investment in nuclear decommissioning trust funds | (212,966) | (151,368) | (155,300) | |||
Change in money pool receivable - net | 23,561 | (23,561) | 4,279 | |||
Changes in other investments - net | - - | 1,856 | - - | |||
Other regulatory investments | (197,587) | (3,691) | (6,827) | |||
Net cash flow used in investing activities | (488,718) | (292,946) | (333,230) | |||
FINANCING ACTIVITIES | ||||||
Proceeds from the issuance of long-term debt | 272,702 | 59,429 | 361,726 | |||
Retirement of long-term debt | (327,516) | (61,856) | (471,040) | |||
Change in money pool payable - net | 27,346 | (69,153) | 69,153 | |||
Dividends paid: | ||||||
Common stock | (64,100) | (85,800) | (69,600) | |||
Preferred stock | (7,776) | (7,776) | (7,776) | |||
Net cash flow used in financing activities | (99,344) | (165,156) | (117,537) | |||
Net increase (decrease) in cash and cash equivalents | (80,351) | 80,910 | (86,679) | |||
Cash and cash equivalents at beginning of period | 89,744 | 8,834 | 95,513 | |||
Cash and cash equivalents at end of period | $9,393 | $89,744 | $8,834 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $77,821 | $78,144 | $91,142 | |||
Income taxes | $33,792 | ($103,476) | $2,177 | |||
See Notes to Respective Financial Statements. |
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $9,393 | $7,133 | ||
Temporary cash investments - at cost, | ||||
which approximates market | - - | 82,611 | ||
Total cash and cash equivalents | 9,393 | 89,744 | ||
Accounts receivable: | ||||
Customer | 115,321 | 87,131 | ||
Allowance for doubtful accounts | (15,777) | (11,039) | ||
Associated companies | 30,902 | 72,472 | ||
Other | 63,702 | 72,425 | ||
Accrued unbilled revenues | 68,428 | 71,643 | ||
Total accounts receivable | 262,576 | 292,632 | ||
Deferred fuel costs | 153,136 | 5,526 | ||
Accumulated deferred income taxes | - - | 27,306 | ||
Fuel inventory - at average cost | 12,342 | 4,298 | ||
Materials and supplies - at average cost | 87,875 | 85,076 | ||
Deferred nuclear refueling outage costs | 30,967 | 16,485 | ||
Prepayments and other | 9,628 | 6,154 | ||
TOTAL | 565,917 | 527,221 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 11,206 | 11,208 | ||
Decommissioning trust funds | 402,124 | 383,784 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,449 | 1,453 | ||
Other | 2,976 | 2,976 | ||
TOTAL | 417,755 | 399,421 | ||
UTILITY PLANT | ||||
Electric | 6,344,435 | 6,124,359 | ||
Property under capital lease | 9,900 | 17,500 | ||
Construction work in progress | 139,208 | 226,172 | ||
Nuclear fuel under capital lease | 92,181 | 93,855 | ||
Nuclear fuel | 22,616 | 12,201 | ||
TOTAL UTILITY PLANT | 6,608,340 | 6,474,087 | ||
Less - accumulated depreciation and amortization | 2,843,904 | 2,753,525 | ||
UTILITY PLANT - NET | 3,764,436 | 3,720,562 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 61,236 | 101,658 | ||
Other regulatory assets | 461,015 | 400,174 | ||
Deferred fuel costs | 51,046 | 1,842 | ||
Other | 46,605 | 42,514 | ||
TOTAL | 619,902 | 546,188 | ||
TOTAL ASSETS | $5,368,010 | $5,193,392 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $ - | $147,000 | ||
Accounts payable: | ||||
Associated companies | 135,357 | 68,829 | ||
Other | 120,090 | 89,896 | ||
Customer deposits | 45,432 | 41,639 | ||
Taxes accrued | - - | 35,874 | ||
Accumulated deferred income taxes | 56,186 | - - | ||
Interest accrued | 19,207 | 21,376 | ||
Obligations under capital leases | 46,857 | 49,816 | ||
Other | 21,836 | 19,648 | ||
TOTAL | 444,965 | 474,078 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,105,712 | 1,121,623 | ||
Accumulated deferred investment tax credits | 64,001 | 68,452 | ||
Obligations under capital leases | 55,224 | 61,538 | ||
Other regulatory liabilities | 76,507 | 67,362 | ||
Decommissioning | 442,115 | 492,745 | ||
Accumulated provisions | 29,073 | 34,977 | ||
Long-term debt | 1,298,238 | 1,191,763 | ||
Other | 306,034 | 237,447 | ||
TOTAL | 3,376,904 | 3,275,907 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 116,350 | 116,350 | ||
Common stock, $0.01 par value, authorized 325,000,000 | ||||
shares; issued and outstanding 46,980,196 shares in 2005 | ||||
and 2004 | 470 | 470 | ||
Paid-in capital | 591,102 | 591,127 | ||
Retained earnings | 838,219 | 735,460 | ||
TOTAL | 1,546,141 | 1,443,407 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,368,010 | $5,193,392 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY ARKANSAS, INC. | |||||
STATEMENTS OF RETAINED EARNINGS | |||||
For the Years Ended December 31, | |||||
2005 | 2004 | 2003 | |||
(In Thousands) | |||||
Retained Earnings, January 1 | $735,460 | $686,826 | $638,193 | ||
Add: | |||||
Net income | 174,635 | 142,210 | 126,009 | ||
Deduct: | |||||
Dividends declared: | |||||
Preferred stock | 7,776 | 7,776 | 7,776 | ||
Common stock | 64,100 | 85,800 | 69,600 | ||
Total | 71,876 | 93,576 | 77,376 | ||
Retained Earnings, December 31 | $838,219 | $735,460 | $686,826 | ||
See Notes to Respective Financial Statements. |
ENTERGY ARKANSAS, INC. | ||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(In Thousands) | ||||||||||
Operating revenues | $1,789,055 | $1,653,145 | $1,589,670 | $1,561,110 | $1,776,776 | |||||
Net Income | $174,635 | $142,210 | $126,009 | $135,643 | $178,185 | |||||
Total assets | $5,368,010 | $5,193,392 | $5,058,078 | $4,569,511 | $4,451,580 | |||||
Long-term obligations (1) | $1,353,462 | $1,253,301 | $1,406,026 | $1,246,567 | $1,417,262 | |||||
(1) Included long-term debt (excluding currently maturing debt) and noncurrent capital lease obligations. | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Millions) | ||||||||||
Electric Operating Revenues: | ||||||||||
Residential | $620 | $539 | $526 | $556 | $586 | |||||
Commercial | 348 | 305 | 291 | 304 | 330 | |||||
Industrial | 362 | 318 | 305 | 330 | 371 | |||||
Governmental | 18 | 16 | 15 | 15 | 16 | |||||
Total retail | 1,348 | 1,178 | 1,137 | 1,205 | 1,303 | |||||
Sales for resale: | ||||||||||
Associated companies | 192 | 250 | 234 | 165 | 240 | |||||
Non-associated companies | 211 | 186 | 188 | 164 | 201 | |||||
Other | 38 | 39 | 31 | 27 | 33 | |||||
Total | $1,789 | $1,653 | $1,590 | $1,561 | $1,777 | |||||
Billed Electric Energy Sales (GWh): | ||||||||||
Residential | 7,653 | 7,028 | 7,057 | 7,050 | 6,918 | |||||
Commercial | 5,730 | 5,428 | 5,328 | 5,221 | 5,162 | |||||
Industrial | 7,334 | 7,004 | 6,999 | 7,074 | 7,052 | |||||
Governmental | 288 | 275 | 266 | 255 | 245 | |||||
Total retail | 21,005 | 19,735 | 19,650 | 19,600 | 19,377 | |||||
Sales for resale: | ||||||||||
Associated companies | 4,555 | 7,437 | 7,036 | 6,811 | 7,217 | |||||
Non-associated companies | 4,103 | 4,911 | 5,399 | 5,069 | 4,909 | |||||
Total | 29,663 | 32,083 | 32,085 | 31,480 | 31,503 | |||||
ENTERGY GULF STATES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Rita and Hurricane Katrina
9; In August and September 2005, Hurricanes Katrina and Rita hit Entergy Gulf States' service territory in the Texas and Louisiana jurisdictions. The storms resulted in power outages, significant damage to electric distribution, transmission, and generation and gas infrastructure, and the loss of sales and customers due to mandatory evacuations. Total restoration costs for the repair or replacement of Entergy Gulf States' electric and gas facilities damaged by Hurricanes Katrina and Rita and business continuity costs are estimated to be $575 million, the majority of which is due to Hurricane Rita. The estimated costs include $289.8 million in construction expenditures and $285.2 million recorded as regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales.
Entergy Gulf States has recorded accruals for the portion of the estimated storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in its service territories and communications with local regulators, Entergy Gulf States recorded assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. In December 2005, Entergy Gulf States filed with the LPSC for interim recovery of storm restoration costs. The filing is discussed below in "Significant Factors and Known Trends." Because Entergy Gulf States has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration co sts and incremental losses it may ultimately recover, or the timing of such recovery.
Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for Hurricane Rita and Hurricane Katrina, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies.
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through Underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). There is an aggregation limit of $1 billion for all parties insured by OIL for any one occurrence, and Entergy has been notified by OIL that it expects claims for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for Entergy and each of the affected domestic utility companies, working with insurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy Gulf States currently estimates that its net insurance recoveries for the losses caused by the hurricanes, including the effect of the OIL aggregation limit being exceeded, will be approximately $95 million.
In December 2005, the U.S. Congress passed the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding to be provided to publicly owned utilities. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding.
Results of Operations
Net Income
2005 Compared to 2004
Net income increased $14.2 million primarily due to higher net revenue and lower interest expense, partially offset by lower other income and higher taxes other than income taxes.
2004 Compared to 2003
Net income increased $149.7 million primarily due to the following:
The increase was partially offset by a higher effective income tax rate.
Net Revenue
2005 Compared to 2004
Net revenue, which is Entergy Gulf States' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2005 to 2004.
|
|
Amount |
|
|
(In Millions) |
|
|
|
2004 net revenue |
|
$1,149.8 |
Price applied to unbilled electric sales |
|
44.2 |
Rate refund provisions |
|
22.1 |
Base rates |
|
8.4 |
Net wholesale revenue |
|
(14.7) |
Volume/weather |
|
(13.4) |
Other |
|
(4.7) |
2005 net revenue |
|
$1,191.7 |
The price applied to unbilled electric sales variance is due to an increase in the fuel cost component of the price applied to unbilled sales in 2005. The fuel cost component is higher because of an increase in natural gas costs. The increase was also due to an increase in the base price applied to unbilled sales in both the Louisiana and Texas jurisdictions. See "Critical Accounting Estimates" below and Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for unbilled revenues.
The rate refund provisions variance is due to provisions recorded in 2004 for potential rate actions and refunds.
The increase in electric base rates is due to the implementation of the LPSC formula rate plan rate increase effective with the first billing cycle of October 2005. The rate increase which is subject to refund is discussed in Note 2 to the domestic utility companies and System Energy financial statements.
The net wholesale revenue variance is primarily due to lower margins on sales to municipal and co-op customers.
The volume/weather variance is primarily due to decreased usage primarily during the unbilled sales period and decreased weather-adjusted usage on billed sales primarily due to the effects of Hurricanes Katrina and Rita. See "Critical Accounting Estimates" below and Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for unbilled revenues. The decrease was partially offset by more favorable weather on billed sales compared to 2004.
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues increased primarily due to:
Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas and purchased power.
2004 Compared to 2003
Net revenue, which is Entergy Gulf States' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2004 to 2003.
Amount |
||
(In Millions) |
||
2003 net revenue |
$1,110.1 |
|
Volume/weather |
26.7 |
|
Net wholesale revenue |
13.0 |
|
Summer capacity charges |
5.5 |
|
Price applied to unbilled sales |
4.8 |
|
Fuel recovery revenues |
(14.2) |
|
Other |
3.9 |
|
2004 net revenue |
$1,149.8 |
The volume/weather variance resulted primarily from an increase of 1,179 GWh in electricity usage in the industrial sector. Billed usage also increased a total of 291 GWh in the residential, commercial, and governmental sectors.
The increase in net wholesale revenue is primarily due to an increase in sales volume to municipal and co-op customers.
The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in June 2002 and ended in May 2003.
The price applied to unbilled sales variance resulted primarily from an increase in the fuel price applied to unbilled sales.
Fuel recovery revenues represent an under-recovery of fuel charges that are recovered in base rates.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase of $187.8 million in fuel cost recovery revenues as a result of higher fuel rates in both the Louisiana and Texas jurisdictions. The increases in volume/weather and wholesale revenue, discussed above, also contributed to the increase.
Fuel and purchased power expenses increased primarily due to:
Other regulatory credits increased primarily due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of amortization in 2004. The amortization of these charges began in June 2002 and ended in May 2003.
Other Income Statement Variances
2005 Compared to 2004
Taxes other than income taxes increased primarily due to higher ad valorem, franchise, and employment taxes. Ad valorem taxes increased primarily due to the increase in fuel-based revenues.
Depreciation and amortization expenses increased primarily due to an increase in plant in service as well as a change in 2004 in the estimated salvage values of certain depreciable assets.
Other income decreased primarily due to miscellaneous income - net, which decreased $35.3 million as a result of the following:
The decrease in other income was partially offset by an increase in interest and dividend income primarily due to proceeds received from the radwaste settlement discussed below in "Significant Factors and Known Trends - Central States Compact Claim" and an increase in AFUDC as a result of an increase in construction work in progress.
Interest on long-term debt decreased primarily due to the net retirement of $357 million of long-term debt in 2004, partially offset by the net issuance of $363.6 million of long-term debt issued in 2005. See "Liquidity and Capital Resources - Sources of Capital" below for tables of Entergy Gulf States' long-term debt issuances and retirements.
2004 Compared to 2003
Other operation and maintenance expenses decreased primarily due to:
The decrease was partially offset by the following:
Miscellaneous income - net increased $145.6 million primarily due to:
Interest on long-term debt decreased $23.2 million primarily due to the financing and debt restructuring program implemented in 2003, which resulted in extended maturities and lower interest rates in Entergy Gulf States' debt portfolio.
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 34.8%, 36.0%, and 21.3%, respectively. See Note 3 to the domestic utility companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35% to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Thousands) |
|||||||
Cash and cash equivalents at beginning of period |
$6,974 |
$206,030 |
$318,404 |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
61,993 |
520,384 |
477,186 |
||||
Investing activities |
(577,859) |
(319,990) |
(497,862) |
||||
Financing activities |
534,265 |
(399,450) |
(91,698) |
||||
Net increase (decrease) in cash and cash equivalents |
18,399 |
(199,056) |
(112,374) |
||||
Cash and cash equivalents at end of period |
$25,373 |
$6,974 |
$206,030 |
Operating Activities
Cash flow from operations decreased by $458.4 million in 2005 compared to 2004 primarily due to:
Cash flow from operations increased by $43.2 million in 2004 compared to 2003 primarily due to decreased vendor payments, increased recovery of deferred fuel costs, and lower interest payments.
In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi rea lized $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million, Entergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy New Orleans' share is $27 million, and System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.
In addition to the direct costs caused by the storms, Hurricanes Katrina and Rita have had other impacts that have affected Entergy Gulf States' liquidity position. The Entergy New Orleans bankruptcy caused fuel and power suppliers to increase their scrutiny of the remaining domestic utility companies with the concern that one of them could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power prices, thereby increasing Entergy Gulf States' ongoing costs, which consumed available credit lines more quickly and in some instances required the posting of additional collateral. Entergy managed through these events thus far, adequately supplied Entergy Gulf States with fuel and power, and as a result of steps taken by it regarding its storm costs expects to have adequate liquidity and credit to continue supplying Entergy Gulf States with fuel and power.
Investing Activities
Net cash used in investing activities increased $257.9 million in 2005 compared to 2004 primarily due to money pool activity, an increase in under-recovered fuel and purchased power expenses of $102.6 million in Texas that have been deferred and are expected to be collected over a period greater than twelve months, and the maturity in 2004 of $23.6 million of other investments that provided cash in 2004. See Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for fuel costs.
Capital expenditures made during 2005 as a result of Hurricane Rita and Hurricane Katrina were $121.8 million.
Net cash used in investing activities decreased $177.9 million in 2004 compared to 2003 primarily due to money pool activity and the maturity in 2004 of $23.6 million of other temporary investments that had been made in 2003, which provided cash in 2004. Also contributing to the decrease was a $27.2 million decrease in under-recovered fuel and purchased power expenses in Texas that have been deferred and are expected to be collected over a period greater than twelve months. See Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for fuel costs.
Financing Activities
Financing activities provided cash of $534.3 million in 2005 compared to using cash of $399.5 million in 2004 primarily due to the capital contribution of $300 million received from Entergy Corporation and the net issuance of $363.6 million of long-term debt in 2005 compared to the net retirement of $357 million of long-term debt in 2004. See "Sources of Capital" below for tables of Entergy Gulf States' long-term debt issuances and retirements.
Net cash used in financing activities increased $307.8 million in 2004 compared to 2003 primarily due to the net retirement of $357 million of long-term debt in 2004 compared to $15.4 million in 2003, in addition to money pool activity and an increase of $26.2 million in common stock dividends paid.
See Note 5 to the domestic utility companies and System Energy financial statements for details on long-term debt.
Capital Structure
Entergy Gulf States' capitalization is balanced between equity and debt, as shown in the following table. The decrease in the debt to capital percentage as of December 31, 2005 is primarily the result of an increase in shareholders' equity due to an increase in paid-in capital resulting from the capital contribution of $300 million received from Entergy Corporation and an increase in retained earnings, partially offset by increased debt outstanding.
|
|
December 31, |
|
December 31, |
|
|
|
|
|
Net debt to net capital |
|
51.4% |
|
53.1% |
Effect of subtracting cash from debt |
|
0.2% |
|
- |
Debt to capital |
|
51.6% |
|
53.1% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, preferred stock with sinking fund, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Gulf States uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Gulf States' financial condition.
Uses of Capital
Entergy Gulf States requires capital resources for:
Following are the amounts of Entergy Gulf States' planned construction and other capital investments, existing debt and lease obligations, and other purchase obligations:
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
after 2010 |
|
Total |
|
(In Millions) |
||||||||
Planned construction and |
|
|
|
|
|
|
|
|
|
capital investment (1) |
$191 |
|
$513 |
|
N/A |
|
N/A |
|
$704 |
Long-term debt |
$- |
|
$675 |
|
$347 |
|
$1,336 |
|
$2,358 |
Operating leases |
$25 |
|
$29 |
|
$19 |
|
$- |
|
$73 |
Purchase obligations (2) |
$180 |
|
$91 |
|
$5 |
|
$- |
|
$276 |
Other long-term liabilities |
$3 |
|
$7 |
|
$2 |
|
- |
|
$12 |
Nuclear fuel lease obligations (3) |
$34 |
|
$21 |
|
N/A |
|
N/A |
|
$55 |
(1) |
Includes approximately $172 to $203 million annually for maintenance capital, which is planned spending on routine capital projects that are necessary to support reliability of service, equipment or systems and to support normal customer growth. |
(2) |
Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Gulf States, it primarily includes unconditional fuel and purchased power obligations. |
(3) |
It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations. |
In addition to the planned spending in the table above, Entergy Gulf States also expects to make $139 million of payments in 2006 related to Hurricane Katrina and Rita restoration work. Also, Entergy Gulf States expects to contribute $22.1 million to its pension plans and $14 million to other postretirement plans in 2006.
The planned capital investment estimate for Entergy Gulf States reflects capital required to support existing business and customer growth. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints, environmental compliance, market volatility, economic trends, business restructuring, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the domestic utility companies and System Energy financial statements.
As a wholly-owned subsidiary, Entergy Gulf States pays dividends to Entergy Corporation from its earnings at a percentage determined monthly. Entergy Gulf States is restricted by long-term debt indentures in the payment of cash dividends or other distributions on its common and preferred stock. Currently, all of Entergy Gulf States' retained earnings are available for distribution.
Sources of Capital
Entergy Gulf States' sources to meet its capital requirements include:
The following table lists First Mortgage Bonds issued by Entergy Gulf States in 2005:
Issue Date |
Description |
Maturity |
Amount |
|||
(In Thousands) |
||||||
February 2005 |
6.18% Series |
March 2035 |
$85,000 |
|||
May 2005 |
5.7% Series |
June 2015 |
200,000 |
|||
July 2005 |
5.12% Series |
August 2010 |
100,000 |
|||
September 2005 |
Libor + .75% Series |
October 2006 |
200,000 |
|||
December 2005 |
Libor + .75% Series |
December 2008 |
350,000 |
|||
$935,000 |
The following table lists long-term debt retired by Entergy Gulf States in 2005:
Retirement Date |
Description |
Maturity |
Amount |
|||
(In Thousands) |
||||||
March 2005 |
8.75% Series Junior Subordinated |
March 2046 |
$87,629 |
|||
May 2005 |
9.0% West Feliciana Parish bonds |
May 2015 |
45,000 |
|||
May 2005 |
7.5% West Feliciana Parish bonds |
May 2015 |
41,600 |
|||
June 2005 |
7.7% West Feliciana Parish bonds |
December 2014 |
94,000 |
|||
August 2005 |
6.77% Series First Mortgage Bonds |
August 2005 |
98,000 |
|||
December 2005 |
Libor + .75% Series |
October 2006 |
200,000 |
|||
$566,229 |
Entergy Gulf States may refinance or redeem debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common and preferred stock issuances by Entergy Gulf States require prior regulatory approval. Preferred stock and debt issuances are also subject to issuance tests set forth in its corporate charter, bond indentures, and other agreements. Entergy Gulf States has sufficient capacity under these tests to meet its foreseeable capital needs.
Entergy Gulf States' receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years:
2005 |
|
2004 |
|
2003 |
|
2002 |
(In Thousands) |
||||||
|
|
|
|
|
|
|
$64,011 |
|
($59,720) |
|
$69,354 |
|
$18,131 |
See Note 4 to the domestic utility companies and System Energy financial statements for a description of the money pool.
Prior to February 8, 2006, borrowings and securities issuances by Entergy Gulf States were limited to amounts authorized by the SEC. Effective with repeal of PUHCA 1935 on that date, the FERC, under the Federal Power Act, has jurisdiction over all of the securities issuances by Entergy Gulf States. After the effective date of PUHCA 1935 repeal, the FERC has issued two orders authorizing long and short-term securities issuances by Entergy Gulf States. The short-term authority extends through March 31, 2008 in an aggregate amount, at any one time outstanding, of up to $350 million.
Significant Factors and Known Trends
Transition to Retail Competition
Texas
As ordered by the PUCT, in January 2003, Entergy Gulf States filed its proposal for an interim solution (retail open access without a FERC-approved RTO), which among other elements, included:
After considering the proposal, in an April 2003 order the PUCT set forth a sequence of proceedings and activities designed to initiate an interim solution. These proceedings and activities included initiating a proceeding to certify an independent organization to administer market protocols and ensure nondiscriminatory access to transmission and distribution systems.
In July 2004, the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have appealed the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.
In June 2005, a Texas law was enacted which provides that:
Entergy Gulf States made the January 2006 filing regarding the identification of power region(s) required by the 2005 legislation, and based on the statutory requirements for the certification of a qualified power region (QPR), previous PUCT rulings, and Entergy Gulf States' geographical location, Entergy Gulf States identified three potential power regions:
Based on previous rulings of the PUCT, and absent reconsideration of those rulings, Entergy Gulf States believes that the third alternative - an ICT operating in Entergy's market area - is not likely to be a viable QPR alternative at this time. Accordingly, while noting this alternative, Entergy Gulf States' filing focuses on the first two alternatives, which are expected to meet the statutory requirements for certification so long as certain key implementation issues can be resolved. Entergy Gulf States' filing enumerated and discussed the corresponding steps and a high-level schedule associated with certifying either of these two power regions.
Entergy Gulf States recommended that the PUCT open a project for the purpose of involving stakeholders in the selection of the single power region that Entergy Gulf States should request for certification. Entergy Gulf States notes that House Bill 1567 also directs Entergy Gulf States to file a transition to competition filing no later than January 1, 2007. The contents of the January 1, 2007 filing will be affected by the power region selected. Accordingly, Entergy Gulf States recommended that the goal of the project should be to reach consensus on a power region in a timely manner to inform Entergy Gulf States' January 1, 2007 filing.
Jurisdictional Separation Plan
Pursuit of Entergy Gulf States' business separation plan mandated by Texas law in connection with retail open access in the Texas service territory has been complicated by the existence of retail operations in Louisiana subject to the jurisdiction of the LPSC. During the course of Entergy Gulf States' retail open access proceedings with the PUCT, the LPSC has been holding independent proceedings concerning the proposed separation of Entergy Gulf States' business. Unlike the plan filed with the PUCT in 2000 (and amended through 2001) to separate Entergy Gulf States' Texas generation, transmission, distribution, and retail electric functions into separate companies, the investigation recently initiated in the LPSC proceedings is evaluating a jurisdictional split of Entergy Gulf States into a Louisiana company and a Texas company. In a status conference held in September 2004 before an ALJ, the LPSC staff asserted that uncertainty with respect to retail open access in Texas should not contr ol whether or when the LPSC should require the jurisdictional separation of Entergy Gulf States and recommended that an investigation concerning the proposed jurisdictional separation proceed. Entergy Gulf States submitted a preliminary methodology developed by Entergy for the jurisdictional separation of Entergy Gulf States if the regulators should determine that a jurisdictional separation is in the public interest. Although it contains many components that are similar to those set forth in the business separation plan filed with the PUCT, the preliminary methodology filed with the LPSC provides for the separation of Entergy Gulf States into a Louisiana vertically integrated utility company and a Texas vertically integrated utility company; rather than the separation of Entergy Gulf States' Texas generation, transmission, distribution, and retail electric functions into separate companies as is envisioned in the plan filed with the PUCT. At a status conference in December 2005, the ALJ set a new procedur al schedule which provides for a hearing to be held in August 2006. Approvals of the FERC, the SEC, the PUCT, and the NRC may also be required for certain matters before any implementation of the jurisdictional separation of Entergy Gulf States.
Louisiana
In November 2001, the LPSC decided not to move forward with retail open access for any customers at this time. The LPSC instead directed its staff to hold collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states. In September 2004, in response to a study performed by the Louisiana State University Center for Energy Studies that evaluated a limited industrial-only retail choice program, the LPSC asked the LPSC staff to solicit comments and obtain information from utilities, customers, and other interested parties concerning the potential costs and benefits of a limited choice program, the impact of such a program on other customers, as well as issues such as
stranded costs and transmission service. Comments from interested parties were file d with the LPSC in January 2005. A technical conference was held in April 2005 and in May 2005 interested parties filed reply comments to arguments made at the technical conference. Entergy stated that it believes that there is no new information or credible evidence that would justify altering the LPSC's previous conclusion that retail access is not in the public interest.State and Local Rate Regulation
The rates that Entergy Gulf States charges for its services are an important item influencing its financial position, results of operations, and liquidity. Entergy Gulf States is closely regulated and the rates charged to its customers are determined in regulatory proceedings. Governmental agencies, the LPSC and the PUCT, are primarily responsible for approval of the rates charged to customers.
In December 2005, Entergy Gulf States filed with the LPSC for interim recovery of $141 million of storm costs. The filing proposes implementing an $18.7 million annual interim surcharge, including carrying charges, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Gulf States recover $850,000 per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Gulf States' interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $6 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Gulf States of 15% of the difference between the February 2006 fuel adjustment clause and the fu el adjustment clause in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $6 million cap is reached. Beginning in September 2006, Entergy Gulf States' interim storm cost recovery of $850,000 per month shall be through base rates. In addition, all excess earnings that Entergy Gulf States may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery. The formula rate plan is discussed in Note 2 to the domestic utility companies and System Energy financial statements.
In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits of $76 million to retail electricity customers in Entergy Gulf States' Louisiana service territory. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Gulf States agreed not to seek re covery from customers of $2 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews. The credits were issued in connection with April 2005 billings. Entergy Gulf States previously reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside the allowed range of 9.9% to 11.4% will be allocated 60% to the customers and 40% to Entergy Gulf States. Entergy Gulf States initial formula rate plan filing is discussed below. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States.
In June 2005, the Alliance for Affordable Energy and an individual plaintiff filed an appeal of the settlement in the 19th Judicial District Court for the parish of East Baton Rouge, Louisiana. The plaintiffs dismissed the appeal with prejudice in December 2005.
In June 2005, Entergy Gulf States made its formula rate plan filing with the LPSC for the test year ending December 31, 2004. The filing shows a net revenue deficiency of $2.58 million indicating that no refund liability exists. The filing also indicates that a prospective rate increase of $23.8 million is required in order for Entergy Gulf States to earn the authorized ROE mid-point of 10.65%. A revision to the filing was made in September 2005 resulting in a $37.2 million base rate increase effective with the first billing cycle of October 2005, subject to refund. The base rate increase consists of two components. The first is a base rate increase of approximately $21.1 million due to the formula rate plan 2004 test year revenue requirement. The second component of the increase is the recovery of the annual revenue requirement of $16.1 million associated with the purchase of power from the Perryville generating station, which purchase was approved by the LPSC. A final order fr om the LPSC is expected by the second quarter of 2006.
Entergy Gulf States filed with the PUCT in July 2005 a request for implementation of an incremental purchased capacity recovery rider, consistent with the recently passed Texas legislation discussed above under "Transition to Retail Competition." The rider requested $23.1 million annually in incremental revenues on a Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligation to purchase power from Entergy Louisiana's recently acquired Perryville plant, over what is already in Entergy Gulf States' base rates. Entergy Gulf States reached an initial agreement with parties that the date upon which cost recovery and cost reconciliation would begin is September 1, 2005. A further non-unanimous settlement was reached with most of the parties that allowed for the rider to be implemented effective December 1, 2005 and collect $18 million annually. The settlement also provides for a fuel reconciliation to be f iled by Entergy Gulf States by May 15, 2006 that will resolve the remaining issues in the case with the exception of the amount of purchased power in current base rates and the costs to which load growth is attributed, both of which were settled. The hearing with respect to the non-unanimous settlement, which was opposed by the Office of Public Utility Counsel, was conducted on October 19, 2005 before the ALJ, who issued a Proposal for Decision supporting the settlement. In December 2005, the PUCT approved the settlement. The amounts collected by the purchased capacity recovery rider are subject to reconciliation.
The recently passed Texas legislation also allowed Entergy Gulf States to file for recovery of reasonable and necessary transition to competition costs. Entergy Gulf States filed with the PUCT in August 2005 an application for recovery of such costs. Entergy Gulf States requested recovery of $189 million in transition to competition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The $189 million represents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to be incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. Entergy Gulf States has reached a unanimous settlement agreement in principle on all issues with the active parties in the transition to com petition cost recovery case. The agreement in principle allows Entergy Gulf States to recover $14.5 million per year in transition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006, subject to refund. Entergy Gulf States expects that the PUCT will consider the formal settlement document, which is currently being developed, in the second quarter 2006.
In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan with an ROE mid-point of 10.5%.
In January 2006, Entergy Gulf States filed with the LPSC its gas rate stabilization plan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. Approval by the LPSC and implementation is not expected until the second quarter of 2006.
Federal Regulation
System Agreement Proceedings
See "System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the proceeding at FERC involving the System Agreement and of other related proceedings.
Transmission
See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Interconnection Orders
See "Interconnection Orders" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Available Flowgate Capacity Proceeding
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Energy Policy Act of 2005
See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Central States Compact Claim
The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska s eeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid $145 million, including interest, to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $19.4 million to Entergy Louisiana. The proceeds were first applied to the existing regulatory asse t, with the remainder causing an increase in pre-tax earnings of $16.7 million at Entergy Gulf States.
Industrial, Commercial, and Wholesale Customers
Entergy Gulf States' large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a portion of Entergy Gulf States' industrial customer base. Entergy Gulf States responds by working with industrial and commercial customers and negotiating electric service contracts to provide competitive rates that match specific customer needs and load profiles. Entergy Gulf States actively participates in economic development, customer retention, and reclamation activities to increase industrial and commercial demand, from both new and existing customers. Entergy Gulf States does not currently expect additional significant losses to cogeneration because of the current economics of the electricity markets and Entergy Gulf States' marketing efforts in retaining industrial customers.
Market and Credit Risks
Entergy Gulf States has certain market and credit risks inherent in its business operations. Market risks represent the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement.
Interest Rate and Equity Price Risk - Decommissioning Trust Funds
Entergy Gulf States' nuclear decommissioning trust funds expose it to fluctuations in equity prices and interest rates. The NRC requires Entergy Gulf States to maintain trusts to fund the costs of decommissioning River Bend. The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the River Bend trust funds because of the application of regulatory accounting principles. The decommissioning trust funds are discussed more thoroughly in Notes 1, 8, and 12 to the domestic utility companies and System Energy financial statements.
Nuclear Matters
Entergy Gulf States owns and operates, through an affiliate, the River Bend nuclear power plant. Entergy Gulf States is, therefore, subject to the risks related to owning and operating a nuclear plant. These include risks from the use, storage, handling, and disposal of high-level and low-level radioactive materials, limitations on the amounts and types of insurance commercially available for losses in connection with nuclear operations, and technological and financial uncertainties related to decommissioning nuclear plants at the end of their licensed lives, including the sufficiency of funds in decommissioning trusts. In the event of an unanticipated early shutdown of River Bend, Entergy Gulf States may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning.
Environmental Risks
Entergy Gulf States' facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Gulf States is in substantial compliance with environmental regulations currently applicable to its facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Litigation Risks
The states of Louisiana and Texas in which Entergy Gulf States operates have proven to be unusually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy Gulf States uses legal and appropriate means to contest litigation threatened or filed against it, but the litigation environment in these states poses a business risk.
Critical Accounting Estimates
The preparation of Entergy Gulf States' financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements could produce estimates that would have a material effect on the presentation of Entergy Gulf States' financial position or results of operations.
Nuclear Decommissioning Costs
Regulations require Entergy Gulf States to decommission the River Bend nuclear power plant after the facility is taken out of service, and money is collected and deposited in trust funds during the facility's operating life in order to provide for this obligation. Entergy Gulf States conducts periodic decommissioning cost studies (typically updated every three to five years) to estimate the costs that will be incurred to decommission the facility. The following key assumptions have a significant effect on these estimates:
Entergy Gulf States collects the projected costs of decommissioning River Bend through rates charged to customers for the portion of the plant subject to cost-based ratemaking. The amounts collected through rates, which are based upon decommissioning cost studies, are deposited in decommissioning trust funds. In December 2002, decommissioning collections from customers for the Louisiana-regulated portion of River Bend were suspended as a result of the settlement with the LPSC of Entergy Gulf States' fourth through eighth earnings reviews. If decommissioning cost study estimates are changed and approved by regulators, collections from customers would also change.
Approximately half of River Bend is not subject to cost-based ratemaking. When Entergy Gulf States acquired the 30% share of River Bend formerly owned by Cajun, Entergy Gulf States obtained decommissioning trust funds of $132 million, which have since grown to $158 million. Entergy Gulf States believes that these funds will be sufficient to cover the costs of decommissioning this portion of River Bend, and no further collections or deposits are being made for these costs.
SFAS 143
Entergy Gulf States implemented SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. Nuclear decommissioning costs comprise substantially all of Entergy Gulf States' asset retirement obligations, and the measurement and recording of Entergy Gulf States' decommissioning obligations changed significantly with the implementation of SFAS 143. The most significant differences in the measurement of these obligations are outlined below:
The net effect of implementing SFAS 143 for the portion of River Bend subject to cost-based ratemaking was recorded as a regulatory asset, with no resulting impact on Entergy Gulf States' net income. Entergy Gulf States recorded this regulatory asset because its existing rate mechanism is based on the original or historical cost standard that allows Entergy Gulf States to recover all ultimate costs of decommissioning existing assets from current and future customers. Upon implementation of SFAS 143 in 2003, assets and liabilities increased as a result of increasing the asset retirement obligation by $129 million to its fair value as determined under SFAS 143, reducing accumulated depreciation by $63 million, and recording the related regulatory asset of $32 million. The net effect of implementing SFAS 143 for the portion of River Bend not subject to cost-based ratemaking resulted in an earnings decrease of $21 million net-of-tax as a result of a one-time cumulative effect of accounting change.
In the third quarter of 2004, Entergy Gulf States recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for River Bend that reflected an expected life extension for the plant. The revised estimate resulted in a $166.4 million reduction in decommissioning liability, along with a $31.3 million reduction in utility plant, a $49.6 million reduction in non-utility property, a $40.1 million reduction in the related regulatory asset, and a regulatory liability of $17.7 million. For the portion of River Bend not subject to cost-based ratemaking, the revised estimate resulted in the elimination of the asset retirement cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 million ($17 million net-of-tax).
Application of SFAS 71
The application of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," has a significant and pervasive impact on accounting and reporting for Entergy Gulf States.
Entergy Gulf States' financial statements primarily reflect assets and costs based on existing cost-based ratemaking regulation in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Under traditional ratemaking practice, Entergy Gulf States is granted a geographic franchise to sell electricity. In return, Entergy Gulf States must make investments and incur obligations to serve customers. Prudently incurred costs are recovered from customers along with a return on investment. Regulators may require Entergy Gulf States to defer collecting from customers some operating costs until a future date. These deferred costs are recorded as regulatory assets in the financial statements. In order to continue applying SFAS 71 to its financial statements, Entergy Gulf States' rates must be set on a cost-of-service basis by an authorized body and the rates must be charged to and collected from customers.
If the generation portion of a utility company moves toward competition, it is possible that generation rates will no longer be set on a cost-of-service basis. If that occurs, the generation portion of the business could be required to discontinue application of SFAS 71. The result of discontinuing application of SFAS 71 would be the removal of regulatory assets and liabilities from the balance sheet, and could include the recording of asset impairments. This result is because some of the costs or commitments incurred under a regulated pricing system might be impaired or not recovered in a competitive market. These costs are referred to as stranded costs.
Unbilled Revenue
As discussed in Note 1 to the domestic utility companies and System Energy financial statements, Entergy Gulf States records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month, including fuel price in Entergy Gulf States' Louisiana jurisdiction. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period and fuel price fluctuations, in addition to changes in certain components of the calculation including changes to estima tes such as line loss, which affects the estimate of unbilled customer usage, and assumptions regarding price such as the fuel cost recovery mechanism.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed income securities and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in both 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2004, 2005, and 2006.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Qualified Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$1,650 |
|
$18,434 |
Rate of return on plan assets |
|
(0.25%) |
|
$1,160 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$789 |
|
$4,622 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
|
0.25% |
|
$817 |
|
$4,628 |
Discount rate |
|
(0.25%) |
|
$493 |
|
$5,424 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 may have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
Total qualified pension cost for Entergy Gulf States in 2005 was $4.3 million. Entergy Gulf States anticipates 2006 qualified pension cost to increase to $6.7 million. Entergy Gulf States contributed $14.8 million to its qualified pension plans in 2005, and under current law, project 2006 contributions will be $22 million. This projection may change pending passage of pension reform legislation. In January 2006, $8.2 million was funded. This contribution was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act. The rise in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004.
Entergy Gulf States' qualified pension accumulated benefit obligation at December 31, 2005, exceeded plan assets. As a result, Entergy Gulf States' was required to recognize an additional minimum liability as prescribed by SFAS 87 at December 31, 2005. At December 31, 2005, Entergy Gulf States' recorded an additional minimum liability for its qualified pension plans of $16.4 million, a regulatory asset of $11.2 million, an intangible asset for the unrecognized prior service cost of $3.2 million, and accumulated other comprehensive income of $1.7 million net-of-tax. At December 31, 2004, Entergy Gulf States' accumulated benefit obligation was less than plan assets, therefore, there was no additional minimum pension liability required to be recognized. Net income for 2005, 2004, and 2003 was not impacted.
Total postretirement health care and life insurance benefit costs for Entergy Gulf States in 2005 were $15.2 million, including $4.7 million in savings due to the estimated effect of future Medicare Part D subsidies. Entergy Gulf States expects 2006 postretirement health care and life insurance benefit costs to be approximately $14.7 million, including $5.3 million in savings due to the estimated effect of future Medicare Part D subsidies.
New Accounting Pronouncements
In December 2005, Entergy Gulf States implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy Gulf States' obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. The net effect of implementing FIN 47 for the rate-regulated business of Entergy Gulf States was recorded as a regulatory asset, with no resulting effect on Entergy Gulf States' net income. Entergy Gulf States recorded this regulatory asset because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, fro m current and future customers. Upon implementation of FIN 47 in December 2005, assets increased by $8.1 million and liabilities increased by $9.5 million as a result of recording the asset retirement obligation at its fair value as determined under FIN 47, increasing utility plant by $0.9 million, increasing accumulated depreciation by $0.6 million, and recording the related regulatory asset of $7.8 million. The implementation of FIN 47 for the portion of Entergy Gulf States not subject to cost-based ratemaking decreased earnings by $0.9 million net-of-tax.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Gulf States, Inc.:
We have audited the accompanying balance sheets of Entergy Gulf States, Inc. as of December 31, 2005 and 2004, and the related statements of income; of retained earnings, comprehensive income, and paid-in capital; and of cash flows (pages 205 through 210 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Gulf States, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Gulf States, Inc. adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY GULF STATES, INC. | ||||||
INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $3,289,511 | $2,821,296 | $2,579,916 | |||
Natural gas | 77,660 | 61,088 | 59,821 | |||
TOTAL | 3,367,171 | 2,882,384 | 2,639,737 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 829,151 | 772,914 | 693,612 | |||
Purchased power | 1,353,108 | 969,779 | 838,498 | |||
Nuclear refueling outage expenses | 18,151 | 15,969 | 14,045 | |||
Other operation and maintenance | 445,326 | 445,413 | 457,428 | |||
Decommissioning | 9,483 | 13,645 | 14,268 | |||
Taxes other than income taxes | 125,263 | 118,081 | 117,009 | |||
Depreciation and amortization | 202,128 | 197,234 | 199,583 | |||
Other regulatory credits - net | (6,799) | (10,070) | (2,476) | |||
TOTAL | 2,975,811 | 2,522,965 | 2,331,967 | |||
OPERATING INCOME | 391,360 | 359,419 | 307,770 | |||
OTHER INCOME (DEDUCTIONS) | ||||||
Allowance for equity funds used during construction | 18,757 | 13,027 | 15,855 | |||
Interest and dividend income | 21,375 | 15,753 | 17,902 | |||
Miscellaneous - net | 910 | 36,180 | (109,389) | |||
TOTAL | 41,042 | 64,960 | (75,632) | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 116,633 | 125,356 | 148,516 | |||
Other interest - net | 10,155 | 8,242 | 8,827 | |||
Allowance for borrowed funds used during construction | (11,153) | (9,771) | (13,349) | |||
TOTAL | 115,635 | 123,827 | 143,994 | |||
INCOME BEFORE INCOME TAXES AND | ||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 316,767 | 300,552 | 88,144 | |||
Income taxes | 110,270 | 108,288 | 24,249 | |||
INCOME BEFORE CUMULATIVE EFFECT | ||||||
OF ACCOUNTING CHANGE | 206,497 | 192,264 | 63,895 | |||
CUMULATIVE EFFECT OF ACCOUNTING | ||||||
CHANGE (net of income taxes of $12,713) | - - | - - | (21,333) | |||
NET INCOME | 206,497 | 192,264 | 42,562 | |||
Preferred dividend requirements and other | 4,201 | 4,472 | 4,701 | |||
EARNINGS APPLICABLE TO | ||||||
COMMON STOCK | $202,296 | $187,792 | $37,861 | |||
See Notes to Respective Financial Statements. |
(Page left blank intentionally)
ENTERGY GULF STATES, INC. | ||||||
STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $206,497 | $192,264 | $42,562 | |||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||
Reserve for regulatory adjustments | (64,802) | 24,112 | 12,605 | |||
Other regulatory credits - net | (6,799) | (10,070) | (2,476) | |||
Depreciation, amortization, and decommissioning | 211,611 | 210,879 | 213,851 | |||
Deferred income taxes and investment tax credits | 404,793 | 57,908 | 37,287 | |||
Cumulative effect of accounting change | - | - | 21,333 | |||
Changes in working capital: | ||||||
Receivables | (147,085) | (54,580) | (45,186) | |||
Fuel inventory | (10,538) | 1,205 | (1,469) | |||
Accounts payable | 99,581 | 126 | (17,013) | |||
Taxes accrued | (272,308) | 99,955 | 12,618 | |||
Interest accrued | 1,596 | (3,834) | (1,900) | |||
Deferred fuel costs | (87,594) | 78,200 | 59,165 | |||
Other working capital accounts | 8,142 | 7,426 | 11,874 | |||
Provision for estimated losses and reserves | (3,979) | (13,844) | 115,878 | |||
Changes in other regulatory assets | (219,172) | (10,060) | 3,983 | |||
Other | (57,950) | (59,303) | 14,074 | |||
Net cash flow provided by operating activities | 61,993 | 520,384 | 477,186 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (370,521) | (357,720) | (348,507) | |||
Allowance for equity funds used during construction | 18,757 | 13,027 | 15,855 | |||
Nuclear fuel purchases | (1,297) | (45,085) | (39,959) | |||
Proceeds from sale/leaseback of nuclear fuel | 491 | 38,800 | 38,029 | |||
Proceeds from nuclear decommissioning trust fund sales | 38,070 | 29,185 | 46,027 | |||
Investment in nuclear decommissioning trust funds | (51,178) | (41,255) | (57,455) | |||
Change in money pool receivable - net | (64,011) | 69,354 | (51,223) | |||
Changes in other investments - net | 4,343 | 23,579 | (23,579) | |||
Other regulatory investments | (152,513) | (49,875) | (77,050) | |||
Net cash flow used in investing activities | (577,859) | (319,990) | (497,862) | |||
FINANCING ACTIVITIES | ||||||
Proceeds from the issuance of long-term debt | 929,782 | 472,039 | 1,032,682 | |||
Retirement of long-term debt | (566,229) | (829,000) | (1,048,129) | |||
Proceeds from a capital contribution | 300,000 | - | - | |||
Change in money pool payable - net | (59,720) | 59,720 | - - | |||
Redemption of preferred stock | (3,450) | (3,450) | (3,450) | |||
Dividends paid: | ||||||
Common stock | (61,900) | (94,300) | (68,100) | |||
Preferred stock | (4,218) | (4,459) | (4,701) | |||
Net cash flow provided by (used in) financing activities | 534,265 | (399,450) | (91,698) | |||
Net increase (decrease) in cash and cash equivalents | 18,399 | (199,056) | (112,374) | |||
Cash and cash equivalents at beginning of period | 6,974 | 206,030 | 318,404 | |||
Cash and cash equivalents at end of period | $25,373 | $6,974 | $206,030 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $117,075 | $130,491 | $152,655 | |||
Income taxes | $14,450 | ($28,169) | ($30,987) | |||
See Notes to Respective Financial Statements. |
ENTERGY GULF STATES, INC. | |||||
BALANCE SHEETS | |||||
ASSETS | |||||
December 31, | |||||
2005 | 2004 | ||||
(In Thousands) | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents: | |||||
Cash | $7,341 | $5,627 | |||
Temporary cash investments - at cost, | |||||
which approximates market | 18,032 | 1,347 | |||
Total cash and cash equivalents | 25,373 | 6,974 | |||
Accounts receivable: | |||||
Customer | 203,205 | 124,801 | |||
Allowance for doubtful accounts | (4,794) | (2,687) | |||
Associated companies | 90,223 | 13,980 | |||
Other | 50,445 | 40,697 | |||
Accrued unbilled revenues | 186,527 | 137,719 | |||
Total accounts receivable | 525,606 | 314,510 | |||
Deferred fuel costs | 254,950 | 61,124 | |||
Accumulated deferred income taxes | - - | 14,339 | |||
Fuel inventory - at average cost | 60,196 | 49,658 | |||
Materials and supplies - at average cost | 112,544 | 101,922 | |||
Prepayments and other | 36,996 | 20,556 | |||
TOTAL | 1,015,665 | 569,083 | |||
OTHER PROPERTY AND INVESTMENTS | |||||
Decommissioning trust funds | 310,779 | 290,952 | |||
Non-utility property - at cost (less accumulated depreciation) | 91,589 | 94,052 | |||
Other | 22,498 | 22,012 | |||
TOTAL | 424,866 | 407,016 | |||
UTILITY PLANT | |||||
Electric | 8,569,073 | 8,418,119 | |||
Natural gas | 86,375 | 78,627 | |||
Construction work in progress | 526,017 | 331,703 | |||
Nuclear fuel under capital lease | 55,155 | 71,279 | |||
Nuclear fuel | 11,338 | - - | |||
TOTAL UTILITY PLANT | 9,247,958 | 8,899,728 | |||
Less - accumulated depreciation and amortization | 4,075,724 | 4,047,182 | |||
UTILITY PLANT - NET | 5,172,234 | 4,852,546 | |||
DEFERRED DEBITS AND OTHER ASSETS | |||||
Regulatory assets: | |||||
SFAS 109 regulatory asset - net | 459,136 | 444,799 | |||
Other regulatory assets | 604,419 | 285,017 | |||
Deferred fuel costs | 69,443 | 29,000 | |||
Long-term receivables | 16,151 | 23,228 | |||
Other | 41,195 | 44,713 | |||
TOTAL | 1,190,344 | 826,757 | |||
TOTAL ASSETS | $7,803,109 | $6,655,402 | |||
See Notes to Respective Financial Statements. | |||||
ENTERGY GULF STATES, INC. | |||||
BALANCE SHEETS | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
December 31, | |||||
2005 | 2004 | ||||
(In Thousands) | |||||
CURRENT LIABILITIES | |||||
Currently maturing long-term debt | $ - | $98,000 | |||
Accounts payable: | |||||
Associated companies | 100,313 | 153,069 | |||
Other | 479,232 | 147,337 | |||
Customer deposits | 57,756 | 53,229 | |||
Accumulated deferred income taxes | 71,196 | - - | |||
Taxes accrued | - - | 22,882 | |||
Nuclear refueling outage costs | 15,548 | - - | |||
Interest accrued | 34,338 | 32,742 | |||
Obligations under capital leases | 33,516 | 33,518 | |||
Other | 14,945 | 19,912 | |||
TOTAL | 806,844 | 560,689 | |||
NON-CURRENT LIABILITIES | |||||
Accumulated deferred income taxes and taxes accrued | 1,619,890 | 1,533,804 | |||
Accumulated deferred investment tax credits | 132,909 | 138,616 | |||
Obligations under capital leases | 20,724 | 37,711 | |||
Other regulatory liabilities | 37,482 | 34,009 | |||
Decommissioning and retirement cost liabilities | 175,480 | 152,095 | |||
Transition to competition | 79,098 | 79,098 | |||
Regulatory reserves | 16,153 | 81,455 | |||
Accumulated provisions | 67,747 | 66,875 | |||
Long-term debt | 2,358,130 | 1,891,478 | |||
Preferred stock with sinking fund | 13,950 | 17,400 | |||
Other | 203,665 | 229,408 | |||
TOTAL | 4,725,228 | 4,261,949 | |||
Commitments and Contingencies | |||||
SHAREHOLDERS' EQUITY | |||||
Preferred stock without sinking fund | 47,327 | 47,327 | |||
Common stock, no par value, authorized 200,000,000 | |||||
shares; issued and outstanding 100 shares in 2005 and 2004 | 114,055 | 114,055 | |||
Paid-in capital | 1,457,486 | 1,157,486 | |||
Retained earnings | 653,578 | 513,182 | |||
Accumulated other comprehensive income (loss) | (1,409) | 714 | |||
TOTAL | 2,271,037 | 1,832,764 | |||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $7,803,109 | $6,655,402 | |||
See Notes to Respective Financial Statements. | |||||
ENTERGY GULF STATES, INC. | ||||||||||||
STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||||
For the Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In Thousands) | ||||||||||||
RETAINED EARNINGS | ||||||||||||
Retained Earnings - Beginning of period | $513,182 | $419,690 | $449,929 | |||||||||
Add - Net Income | 206,497 | $206,497 | 192,264 | $192,264 | 42,562 | $42,562 | ||||||
Deduct: | ||||||||||||
Dividends declared on common stock | 61,900 | 94,300 | 68,100 | |||||||||
Preferred dividend requirements and other | 4,201 | 4,201 | 4,472 | 4,472 | 4,701 | 4,701 | ||||||
Total | 66,101 | 98,772 | 72,801 | |||||||||
Retained Earnings - End of period |
$653,578
|
$513,182
|
$419,690
|
|||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||||
Balance at beginning of period: | ||||||||||||
Accumulated derivative instrument fair value changes |
$ - | $3,912 | $3,286 | |||||||||
Other accumulated comprehensive income items |
714 | - - | - - | |||||||||
Total | $714 | $3,912 | $3,286 | |||||||||
Net derivative instrument fair value changes | ||||||||||||
arising during the period | - - | - - | (3,912) | (3,912) | 626 | 626 | ||||||
Minimum pension liability | (2,233) | (2,233) | - - | - - | - - | - - | ||||||
Net unrealized investment gains | 110 | 110 | 714 | 714 | - - | - - | ||||||
Balance at end of period: | ||||||||||||
Accumulated derivative instrument fair value changes |
- - | - - | 3,912 | |||||||||
Other accumulated comprehensive income items |
(1,409) | 714 | - | |||||||||
Total |
($1,409)
|
$714
|
$3,912
|
|||||||||
Comprehensive Income |
$200,173
|
$184,594
|
$38,487
|
|||||||||
PAID-IN CAPITAL | ||||||||||||
Paid-in Capital - Beginning of period | $1,157,486 | $1,157,486 | $1,157,484 | |||||||||
Add: | ||||||||||||
Capital contribution | 300,000 | - | - | |||||||||
Other | - | - | 2 | |||||||||
Paid-in Capital - End of period |
$1,457,486
|
$1,157,486
|
$1,157,486
|
|||||||||
ENTERGY GULF STATES, INC. | ||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(In Thousands) | ||||||||||
Operating revenues | $3,367,171 | $2,882,384 | $2,639,737 | $2,183,879 | $2,648,560 | |||||
Net Income | $206,497 | $192,264 | $45,262 | $174,078 | $179,444 | |||||
Total assets | $7,803,109 | $6,655,402 | $6,854,862 | $6,599,533 | $6,209,741 | |||||
Long-term obligations (1) | $2,392,804 | $1,946,589 | $2,051,083 | $2,096,329 | $2,130,245 | |||||
(1) Included long-term debt (excluding currently maturing debt), preferred stock with sinking fund, and noncurrent capital lease obligations. | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Millions) | ||||||||||
Electric Operating Revenues: | ||||||||||
Residential | $960 | $881 | $829 | $700 | $788 | |||||
Commercial | 734 | 672 | 614 | 502 | 587 | |||||
Industrial | 1,014 | 976 | 853 | 695 | 946 | |||||
Governmental | 41 | 37 | 39 | 34 | 38 | |||||
Total retail | $2,749 | 2,566 | 2,335 | 1,931 | 2,359 | |||||
Sales for resale: | ||||||||||
Associated companies | 186 | 52 | 42 | 28 | 73 | |||||
Non-associated companies | 188 | 160 | 150 | 139 | 146 | |||||
Other | 167 | 43 | 53 | 44 | 13 | |||||
Total | $3,290 | $2,821 | $2,580 | $2,142 | $2,591 | |||||
Billed Electric Energy Sales (GWh): | ||||||||||
Residential | 10,024 | 9,803 | 9,739 | 9,502 | 9,059 | |||||
Commercial | 8,486 | 8,444 | 8,174 | 7,894 | 7,668 | |||||
Industrial | 14,967 | 16,596 | 15,417 | 15,887 | 16,658 | |||||
Governmental | 441 | 432 | 475 | 477 | 452 | |||||
Total retail | 33,918 | 35,275 | 33,805 | 33,760 | 33,837 | |||||
Sales for resale: | ||||||||||
Associated companies | 3,213 | 1,528 | 1,185 | 708 | 1,087 | |||||
Non-associated companies | 2,804 | 3,172 | 3,358 | 4,391 | 3,305 | |||||
Total | 39,935 | 39,975 | 38,348 | 38,859 | 38,229 | |||||
ENTERGY LOUISIANA HOLDINGS, INC. AND ENTERGY LOUISIANA, LLC
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Entergy Louisiana Corporate Restructuring
Effective December 31, 2005, Entergy Louisiana, LLC, a limited liability company organized under the laws of the State of Texas as part of a restructuring involving a Texas statutory merger-by-division, succeeded to all of the regulated utility operations of Entergy Louisiana, Inc. Entergy Louisiana, LLC was allocated substantially all of the property and other assets of Entergy Louisiana, Inc., including all assets used to provide retail and wholesale electric service to Entergy Louisiana, Inc.'s customers. Entergy Louisiana, LLC also assumed substantially all of the liabilities of Entergy Louisiana, Inc., including all of its debt securities and leases but excluding the outstanding preferred stock of Entergy Louisiana, Inc.
After the merger-by-division, Entergy Louisiana, LLC issued $100 million of its preferred membership units which grant the holders thereof the power to vote together, as a single class, with Entergy Corporation as the holder of the common membership interests. The preferred membership interests have approximately 23% of the total voting power. Due to these outstanding voting membership interests, Entergy Louisiana, LLC is precluded from joining in the consolidated federal income tax return of Entergy and its subsidiaries.
As the operator of Entergy Louisiana, Inc.'s retail utility operations, Entergy Louisiana, LLC is subject to the jurisdiction of the LPSC over electric service, rates, and charges to the same extent that the LPSC possessed jurisdiction over Entergy Louisiana, Inc.'s retail utility operations. The restructuring is intended to reduce corporate franchise taxes. The restructuring implements a recommendation from the LPSC staff and is expected to result in a decrease in Entergy Louisiana, LLC's rates to its Louisiana retail customers.
On December 31, 2005, and immediately prior to the formation of Entergy Louisiana, LLC, Entergy Louisiana, Inc. changed its state of incorporation from Louisiana to Texas and its name to Entergy Louisiana Holdings, Inc. Upon the effectiveness of the statutory merger-by-division on December 31, 2005, Entergy Louisiana, LLC was organized and Entergy Louisiana Holdings held all of Entergy Louisiana, LLC's common membership interests. All of the common membership interests of Entergy Louisiana, LLC continue to be held by Entergy Louisiana Holdings, and all of the common stock of Entergy Louisiana Holdings continues to be held by Entergy Corporation. As part of the merger-by-division, Entergy Louisiana Holdings succeeded to Entergy Louisiana, Inc.'s rights and obligations with respect to Entergy Louisiana, Inc.'s outstanding preferred stock, which has an aggregate par value of approximately $100 million. Within three to nine months of the effective date of the merger-by- division, however, Entergy Louisiana Holdings expects to redeem or repurchase and retire the Entergy Louisiana, Inc. preferred stock then outstanding and thereafter amend its charter to eliminate authority to issue preferred stock.
Any redemption of preferred stock by Entergy Louisiana Holdings in connection with the proposed restructuring will be made at the following respective redemption prices as provided in the Entergy Louisiana Holdings amended and restated articles of incorporation:
Series of Entergy Louisiana Holdings Preferred Stock |
Redemption Price Per Share |
|
4.96% Preferred Stock, Cumulative, $100.00 par value |
$104.25 |
|
4.16% Preferred Stock, Cumulative, $100.00 par value |
$104.21 |
|
4.44% Preferred Stock, Cumulative, $100.00 par value |
$104.06 |
|
5.16% Preferred Stock, Cumulative, $100.00 par value |
$104.18 |
|
5.40% Preferred Stock, Cumulative, $100.00 par value |
$103.00 |
|
6.44% Preferred Stock, Cumulative, $100.00 par value |
$102.92 |
|
7.84% Preferred Stock, Cumulative, $100.00 par value |
$103.78 |
|
7.36% Preferred Stock, Cumulative, $100.00 par value |
$103.36 |
|
8% Preferred Stock, Cumulative, $25.00 par value |
$ 25.00 |
Entergy Louisiana Holdings also holds all of the common membership interests in Entergy Louisiana Properties, LLC, a Texas limited liability company that, as part of the restructuring, was organized and allocated the Entergy Louisiana, Inc. assets not allocated to Entergy Louisiana, LLC. The assets allocated to Entergy Louisiana Properties were two tracts of undeveloped real estate, known as the St. Rosalie and Wilton Plant sites, and Entergy Louisiana, Inc.'s equity ownership interest in and a long-term note receivable from System Fuels, Inc., a company also owned by Entergy Arkansas, Entergy Mississippi and Entergy New Orleans, which implements and maintains certain programs for the purchase, delivery and storage of fuel supplies for Entergy's utility subsidiaries. Entergy Louisiana Properties also assumed any obligations and liabilities relating to these assets. The book value of the assets allocated to Entergy Louisiana Properties is approximately $33 million. Those activities of E ntergy Louisiana Properties that were subject to the LPSC's jurisdiction at Entergy Louisiana, Inc. will continue to be subject to the jurisdiction of the LPSC. Entergy Louisiana, LLC and Entergy Louisiana Properties will be regulated by the LPSC on a consolidated basis.
Hurricane Rita and Hurricane Katrina
In August and September 2005, Hurricane Katrina and Hurricane Rita, along with extensive flooding that resulted from levee breaks in and around Entergy Louisiana's service territory, caused catastrophic damage. The storms and flooding resulted in widespread power outages, significant damage to distribution, transmission, and generation infrastructure, and the loss of sales and customers due to mandatory evacuations and destruction of homes and businesses due to wind, rain, and extended periods of flooding. Total restoration costs for the repair and/or replacement of Entergy Louisiana's electric facilities damaged by Hurricanes Katrina and Rita and business continuity costs are estimated to be $510 million, including $321.1 million in construction expenditures and $188.9 million recorded as regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to re cover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales.
Entergy Louisiana has recorded accruals for the portion of the estimated storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in its service territories and communications with local regulators, Entergy Louisiana recorded assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. In December 2005, Entergy Louisiana filed with the LPSC for interim recovery of storm restoration costs. The filing is discussed below in "Significant Factors and Known Trends." Because Entergy Louisiana has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs and incremental losses it may ultimately recover, or the timing of such recovery.
Entergy Louisiana has restored power to customers who can take service in most of its service territory. Some customers in the most devastated areas of Entergy Louisiana's service territory are unable to accept electric service for a period of time that cannot be estimated. Entergy Louisiana estimates that lost non-fuel revenues in 2006 caused by the hurricanes will be approximately $39 million. Entergy Louisiana's estimate of the revenue impact of customers who are currently unable to accept electric and gas service is subject to change, however, because of a range of uncertainties, in particular the timing of when individual customers will return to service. Restoration for many of these customers will follow major repairs or reconstruction of customer facilities, and will be contingent on validation by local authorities of habitability and electrical safety of customers' structures.
Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies.
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through Underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. There i s an aggregation limit of $1 billion for all parties insured by OIL for any one occurrence, and Entergy has been notified by OIL that it expects claims for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for Entergy and each of the affected domestic utility companies, working with insurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy Louisiana currently estimates that its net insurance recoveries for the losses caused by the hurricanes, including the effect of the OIL aggregation limit being exceeded, will be approximately $40 million.
In December 2005, the U.S. Congress passed the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding to be provided to publicly owned utilities. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding.
Results of Operations
Net Income
2005 Compared to 2004
Net income increased slightly primarily due to lower other operation and maintenance expenses, lower depreciation and amortization expenses, and higher other income, substantially offset by higher interest and other charges and a higher effective income tax rate.
2004 Compared to 2003
Net income decreased $18.7 million primarily due to lower net revenue partially offset by lower other operation and maintenance expenses.
Net Revenue
2005 Compared to 2004
Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2005 to 2004.
Amount |
||
(In Millions) |
||
2004 net revenue |
$931.3 |
|
Reserve equalization |
21.1 |
|
Rate refund provisions |
12.0 |
|
Net wholesale revenue |
10.8 |
|
Volume/weather |
(32.5) |
|
2004 deferrals |
(15.2) |
|
Other |
4.0 |
|
2005 net revenue |
$931.5 |
The reserve equalization variance is primarily due to a revision of reserve equalization payments between Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations and an increase in capacity due to the purchase of Perryville.
The rate refund provisions variance is primarily due to higher accruals for potential rate actions and refunds in 2004.
The net wholesale revenue variance is primarily due to an increase in volume as a result of the sale of a portion of Perryville generation to Entergy Gulf States.
The volume/weather variance is due to a decrease of a total of 1,742 GWh in weather-adjusted usage in all sectors primarily due to Hurricane Katrina and Hurricane Rita, partially offset by the effect of more favorable weather compared to 2004 on billed sales in the residential and commercial sectors.
The 2004 deferrals variance is due to the deferral related to Entergy's voluntary severance program, in accordance with a stipulation with the LPSC staff. The deferrals are being amortized over four years effective January 2004.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to:
The increase was partially offset by the volume/weather variance discussed above.
Fuel and purchased power expenses increased primarily due to a shift from lower priced nuclear generation to higher priced gas generation and purchased power due to nuclear plant outages in 2005 in addition to increases in the market prices of natural gas and purchased power.
Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits increased primarily due to the following:
The increase was partially offset by the deferral in 2004 of $15.2 million related to Entergy's voluntary severance program, as discussed above.
2004 Compared to 2003
Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2004 to 2003.
Amount |
||
(In Millions) |
||
2003 net revenue |
$973.7 |
|
Price applied to unbilled sales |
(31.9) |
|
Deferred fuel cost revisions |
(29.4) |
|
Rate refund provisions |
(12.2) |
|
Volume/weather |
17.0 |
|
Summer capacity charges |
11.8 |
|
Other |
2.3 |
|
2004 net revenue |
$931.3 |
The price applied to the unbilled sales variance is due to a decrease in the fuel price included in unbilled sales in 2004 caused primarily by the effect of nuclear plant outages in 2003 on average fuel costs. See "Critical Accounting Estimates" below and Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for unbilled revenues.
The deferred fuel cost revisions variance resulted from a revised unbilled sales pricing estimate made in the first quarter of 2003 to more closely align the fuel component of that pricing with expected recoverable fuel costs.
The rate refund provisions variance is due to higher accruals for potential rate actions and refunds recorded in 2004 compared to 2003.
The volume/weather variance is due to an increase of a total of 620 GWh in weather-adjusted usage in all sectors, partially offset by the effect of milder weather compared to 2003 on billed sales in the residential and commercial sectors.
The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in August 2002 and ended in July 2003.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to:
The increase was partially offset by the following:
Fuel and purchased power expenses increased primarily due to:
Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits increased primarily due to:
Other Income Statement Variances
2005 Compared to 2004
Other operation and maintenance expenses decreased primarily due to:
The decrease was partially offset by an increase of $5.3 million in storm reserves in connection with the March 2005 rate case settlement.
Depreciation and amortization expenses decreased primarily due to a change in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005.
Other income increased primarily due to:
The increase was partially offset by the write-off of $7.1 million in June 2005 of a portion of the customer care system investment and the related allowance for equity funds used during construction pursuant to an LPSC-approved settlement.
Interest and other charges increased primarily due to interest accrued on past transmission construction collections from a cogenerator in accordance with a December 2004 FERC order.
2004 Compared to 2003
Other operation and maintenance expenses decreased primarily due to voluntary severance program accruals of $19.7 million in 2003, partially offset by an increase of $9.1 million in customer service support costs.
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 43.0%, 38.4%, and 40.0%, respectively. See Note 3 to the domestic utility companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Thousands) |
|||||||
Cash and cash equivalents at beginning of period |
$146,049 |
$8,787 |
$311,800 |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
179,790 |
506,584 |
353,768 |
||||
Investing activities |
(549,453) |
(283,780) |
(249,518) |
||||
Financing activities |
330,899 |
(85,542) |
(407,263) |
||||
Net increase (decrease) in cash and cash equivalents |
(38,764) |
137,262 |
(303,013) |
||||
Cash and cash equivalents at end of period |
$107,285 |
$146,049 |
$8,787 |
Although cash and cash equivalents at end of period and cash flow provided by operating activities for the year ended December 31, 2005 for Entergy Louisiana, LLC as presented on the Statements of Cash Flows differ by an immaterial amount from the table above, the analysis below applies to both Entergy Louisiana, LLC and Entergy Louisiana Holdings in all material respects, except where specifically noted.
Operating Activities
Cash flow from operations decreased $326.8 million in 2005 primarily due to storm restoration spending, the receipt of an income tax payment of $70.7 million in 2004 through Entergy's inter-company tax allocation process compared to income tax payments in 2005 of $11.1 million, and decreased recovery of deferred fuel costs.
Cash flow from operations increased $152.8 million in 2004 primarily due to the increased collection of deferred fuel costs and the receipt of an income tax payment through Entergy's inter-company tax allocation process.
In addition to the direct costs caused by the storms, Hurricanes Katrina and Rita have had other impacts that have affected Entergy Louisiana's liquidity position. The Entergy New Orleans bankruptcy caused fuel and power suppliers to increase their scrutiny of the remaining domestic utility companies with the concern that one of them could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power prices, thereby increasing Entergy Louisiana's ongoing costs, which consumed available credit lines more quickly and in some instances required the posting of additional collateral. Entergy managed through these events thus far, adequately supplied Entergy Louisiana with fuel and power, and as a result of steps taken by it regarding its storm costs expects to have adequate liquidity and credit to continue supplying Entergy Louisiana with fuel and power.
In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi realize d $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million, Entergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy New Orleans' share is $27 million, and System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net oper ating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.
Investing Activities
The increase of $265.7 million in net cash used by investing activities in 2005 was primarily due to:
The increases were offset by money pool activity.
Capital expenditures made during 2005 as a result of Hurricanes Katrina and Rita were $151.9 million.
The increase of $34.3 million in net cash used by investing activities in 2004 was primarily due to money pool activity and increases in spending on transmission projects and fossil plant projects, partially offset by decreased spending on customer service projects.
Financing Activities
Entergy Louisiana's financing activities provided $330.9 million in 2005 compared to using $85.5 million in 2004 primarily due to:
The decrease of $321.7 million in net cash used by financing activities in 2004 was primarily due to:
See Note 5 to the domestic utility companies and System Energy financial statements for details of long-term debt.
Capital Structure
Entergy Louisiana's capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital percentage as of December 31, 2005 is primarily the result of increased debt outstanding partially offset by an increase in shareholders' equity resulting from the preferred stock issuance and increased retained earnings.
|
|
December 31, |
|
December 31, |
|
|
|
|
|
Net debt to net capital |
|
48.4% |
|
44.8% |
Effect of subtracting cash from debt |
|
2.2% |
|
3.9% |
Debt to capital |
|
50.6% |
|
48.7% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana's financial condition.
Uses of Capital
Entergy Louisiana requires capital resources for:
Following are the amounts of Entergy Louisiana's planned construction and other capital investments, existing debt and lease obligations, and other purchase obligations:
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
After 2010 |
|
Total |
(In Millions) |
|||||||||
Planned construction and |
|
|
|
|
|
|
|
|
|
capital investment (1) |
$206 |
|
$482 |
|
N/A |
|
N/A |
|
$688 |
Long-term debt |
$- |
|
$- |
|
$229 |
|
$943 |
|
$1,172 |
Operating leases |
$8 |
|
$14 |
|
$9 |
|
$9 |
|
$40 |
Purchase obligations (2) |
$655 |
|
$1,250 |
|
$1,036 |
|
$4,146 |
|
$7,087 |
Nuclear fuel lease obligations (3) |
$23 |
|
$36 |
|
N/A |
|
N/A |
|
$59 |
(1) |
Includes approximately $127 to $170 million annually for maintenance capital, which is planned spending on routine capital projects that are necessary to support reliability of service, equipment or systems and to support normal customer growth. |
(2) |
Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Louisiana, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Vidalia purchased power agreement and the Unit Power Sales Agreement, both of which are discussed in Note 8 to the domestic utility companies and System Energy financial statements. |
(3) |
It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations. |
In addition to the planned spending in the table above, Entergy Louisiana also expects to make $164 million of payments in 2006 related to Hurricane Katrina and Rita restoration work. Also, Entergy Louisiana expects to contribute $54 million to its pension plans and $8.4 million to other postretirement plans in 2006.
The planned capital investment estimate for Entergy Louisiana reflects capital required to support existing business and customer growth. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints, environmental compliance, market volatility, economic trends, business restructuring, and the ability to access capital. As a result of Hurricanes Katrina and Rita, Entergy Louisiana is currently reassessing its planned levels of construction and other capital investments. Significant construction expenditures are expected due to the restoration and replacement of damaged equipment and assets. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the domestic utility companies and System Energy financial statements.
The Federal Power Act restricts the ability of a public utility to pay dividends out of capital. As a result of its restructuring and the related accounting, Entergy Louisiana, LLC applied to the FERC for a declaratory order to pay dividends on its common and preferred membership interests from the following sources: (1) the amount of Entergy Louisiana, Inc.'s retained earnings immediately prior to its restructuring on December 31, 2005; (2) an amount in excess of the amount in (1) over a transition period not expected to last more than 3 years as long as Entergy Louisiana, LLC's proprietary capital ratio is, and will remain, above 30%; and (3) the amount of Entergy Louisiana, LLC's retained earnings after the restructuring. The FERC granted the declaratory order on January 23, 2006. Dividends paid by Entergy Louisiana, LLC on its common membership interests to Entergy Louisiana Holdings may, in turn, be paid by Entergy Louisiana Holdings to Entergy Corporation without the need for FERC approval. As a wholly-owned subsidiary, Entergy Louisiana Holdings dividends its earnings to Entergy Corporation at a percentage determined monthly.
Sources of Capital
Entergy Louisiana's sources to meet its capital requirements include:
The following table lists Fist Mortgage Bonds issued by Entergy Louisiana in 2005:
Issue Date |
Description |
Maturity |
Amount |
|||
(In Thousands) |
||||||
May 2005 |
4.67% Series |
June 2010 |
$55,000 |
|||
August 2005 |
5.56% Series |
September 2015 |
100,000 |
|||
August 2005 |
6.3% Series |
September 2035 |
100,000 |
|||
October 2005 |
5.83% Series |
November 2010 |
150,000 |
|||
$405,000 |
The following table lists long-term debt retired by Entergy Louisiana in 2005:
Retirement Date |
Description |
Maturity |
Amount |
|||
(In Thousands) |
||||||
September 2005 |
7.5% St. Charles Parish |
June 2021 |
$50,000 |
|||
September 2005 |
7.05% St. Charles Parish |
April 2022 |
$20,000 |
|||
September 2005 |
7.0% St. Charles Parish |
December 2022 |
$24,000 |
|||
September 2005 |
6.2% St. Charles Parish |
May 2023 |
$33,000 |
|||
September 2005 |
6.875% St. Charles Parish |
July 2024 |
$20,400 |
|||
September 2005 |
6.375% St. Charles Parish |
November 2025 |
$16,770 |
|||
$164,170 |
In June 2005, Entergy Louisiana purchased its $55 million of 4.9% Series St. Charles Parish bonds from the holders, pursuant to a mandatory tender provision, and has not remarketed the bonds at this time.
Entergy Louisiana may refinance or redeem debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common and preferred stock issuances by Entergy Louisiana require prior regulatory approval. Preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and other agreements. Entergy Louisiana has sufficient capacity under these tests to meet its foreseeable capital needs.
In May 2005, Entergy Louisiana entered into a credit facility for $85 million expiring April 2006 and Entergy Arkansas renewed its $85 million credit facility with the same lender. Either company can borrow up to the full amount on its respective facility, but at no time can the combined amount of outstanding borrowings on the two facilities exceed $85 million. Entergy Louisiana granted the lender a security interest in its accounts receivable to secure its $85 million facility. Entergy Louisiana has outstanding borrowings on this credit facility of $40 million as of December 31, 2005.
In July 2005, Entergy Louisiana and Entergy New Orleans renewed their 364-day credit facilities with the same lender through May 2006. Entergy New Orleans increased the amount of its credit facility to $15 million, the same amount as Entergy Louisiana's facility. Either company can borrow up to the full amount on its respective facility, but at no time can the combined amount of outstanding borrowings on the two facilities exceed $15 million. There were no outstanding borrowings under the Entergy Louisiana credit facility as of December 31, 2005. Entergy New Orleans has outstanding borrowings on its credit facility of $15 million at December 31, 2005, therefore no capacity is available on either credit facility.
Entergy Louisiana's receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years:
2005 |
|
2004 |
|
2003 |
|
2002 |
(In Thousands) |
||||||
|
|
|
|
|
|
|
($68,677) |
|
$40,549 |
|
($41,317) |
|
$18,854 |
See Note 4 to the domestic utility companies and System Energy financial statements for a description of the money pool.
Prior to February 8, 2006, borrowings and securities issuances by Entergy Louisiana, LLC (as well as, prior to December 31, 2005, Entergy Louisiana, Inc., the predecessor to Entergy Louisiana, LLC's SEC financing authority) were limited to amounts authorized by the SEC. Effective with repeal of PUHCA 1935 on that date, the FERC, under the Federal Power Act, has jurisdiction over all of the securities issuances by Entergy Louisiana, LLC. After the effective date of PUHCA 1935 repeal, the FERC has issued two orders authorizing long and short-term securities issuances by Entergy Louisiana, LLC. The short-term authority extends through March 31, 2008 in an aggregate amount, at any one time outstanding, of up to $250 million.
The FERC does not have jurisdiction over the securities issuance transactions of Entergy Louisiana Holdings, which may borrow from the money pool up to an aggregate of $100 million at any one time outstanding. See Note 4 to the domestic utility companies and System Energy financial statements for further discussion of Entergy Louisiana's short-term borrowing limits.
Significant Factors and Known Trends
State and Local Rate Regulation
The rates that Entergy Louisiana charges for its services are an important item influencing its financial position, results of operations, and liquidity. Entergy Louisiana is closely regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the LPSC, is primarily responsible for approval of the rates charged to customers.
In December 2005, Entergy Louisiana filed with the LPSC for interim recovery of $355 million of storm costs. The filing proposes implementing a $41.8 million annual interim surcharge, including carrying charges, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Louisiana recover $2 million per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Louisiana's interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $14 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Louisiana of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment clause in those succ essive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $14 million cap is reached. Beginning in September 2006, Entergy Louisiana's interim storm cost recovery of $2 million per month shall be through base rates. In addition, all excess earnings that Entergy Louisiana may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery. The formula rate plan is discussed in Note 2 to the domestic utility companies and System Energy financial statements.
In January 2004, Entergy Louisiana made a rate filing with the LPSC requesting a base rate increase of approximately $167 million. In that filing, Entergy Louisiana noted that approximately $73 million of the base rate increase was attributable to the acquisition of a generating station and certain power purchase agreements that, based on current natural gas prices, would produce fuel and purchased power savings for customers that substantially mitigate the impact of the requested base rate increase. Hearings concluded in December 2004. Based on evidence submitted at the hearing, the LPSC staff recommended approximately a $7 million base rate increase. The LPSC staff proposed the implementation of a formula rate plan that includes a provision for the recovery of incremental capacity costs, including those related to the proposed Perryville acquisition, without filing a traditional base rate proceeding. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that included an annual base rate increase of approximately $18.3 million which was implemented, subject to refund, effective with May 2005 billings. In May 2005, the LPSC approved a modified settlement which, among other things, reduces depreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change in rates. Subsequently, in June 2005, Entergy Louisiana made a revised compliance filing with the LPSC supporting a revised depreciation rate for Waterford 3, which reflects the removal of interim additions, and a rate increase from the purchase of the Perryville power plant, which results in a net $0.8 million annual rate reduction. Entergy Louisiana reduced rates effective with the first billing cycle in July 2005 and refunded excess revenue collected during May 2005, including interest, in August 2005.
The May 2005 rate settlement includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory earnings range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initial formula rate plan filing will be in May 2006 based on a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.
In March 2005, the LPSC approved a settlement proposal which resulted in credits of $14 million for retail electricity customers of Entergy Louisiana. The settlement dismissed, among other dockets, dockets established to consider issues concerning power purchases for Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits were issued in connection with April 2005 billings. Entergy Louisiana reserved for the approximate refund amounts.
In addition to rate proceedings, Entergy Louisiana's fuel costs recovered from customers are subject to regulatory scrutiny. This regulatory risk represents Entergy Louisiana's largest potential exposure to price changes in the commodity markets.
Entergy Louisiana's retail rate matters and proceedings, including fuel cost recovery-related issues, are discussed in Note 2 to the domestic utility companies and System Energy financial statements.
Federal Regulation
System Agreement Proceedings
See "System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the proceeding at FERC involving the System Agreement and of other related proceedings.
Transmission
See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Interconnection Orders
See "Interconnection Orders" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Available Flowgate Capacity Proceeding
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Energy Policy Act of 2005
See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Utility Restructuring
In November 2001, the LPSC decided not to move forward with retail open access for any customers at this time. The LPSC instead directed its staff to hold collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states. In September 2004, in response to a study performed by the Louisiana State University Center for Energy Studies that evaluated a limited industrial-only retail choice program, the LPSC asked the LPSC staff to solicit comments and obtain information from utilities, customers, and other interested parties concerning the potential costs and benefits of a limited choice program, the impact of such a program on other customers, as well as issues such as
stranded costs and transmission service. Comments from interested parties were filed wi th the LPSC in January 2005. A technical conference was held in April 2005 and in May 2005 interested parties filed reply comments to arguments made at the technical conference. Entergy stated that it believes that there is no new information or credible evidence that would justify altering the LPSC's previous conclusion that retail access is not in the public interest.Central States Compact Claim
The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsui t against Nebraska seeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid $145 million, including interest, to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $19.4 million to Entergy Louisiana. A liability was recorded for the portion of the proceeds previously recovered from ratepayers, with the remainder of the proceeds causing an increase in pre-tax earnings of $4.6 million at Entergy Louisiana.
Market and Credit Risks
Entergy Louisiana has certain market and credit risks inherent in its business operations. Market risks represent the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement.
Interest Rate and Equity Price Risk - Decommissioning Trust Funds
Entergy Louisiana's nuclear decommissioning trust funds expose it to fluctuations in equity prices and interest rates. The NRC requires Entergy Louisiana to maintain trusts to fund the costs of decommissioning Waterford 3. The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the Waterford 3 trust funds because of the application of regulatory accounting principles. The decommissioning trust funds are discussed more thoroughly in Notes 1, 8, and 12 to the domestic utility companies and System Energy financial statements.
Nuclear Matters
Entergy Louisiana owns and operates, through an affiliate, the Waterford 3 nuclear power plant. Entergy Louisiana is, therefore, subject to the risks related to owning and operating a nuclear plant. These include risks from the use, storage, handling and disposal of high-level and low-level radioactive materials, limitations on the amounts and types of insurance commercially available for losses in connection with nuclear operations, and technological and financial uncertainties related to decommissioning nuclear plants at the end of their licensed lives, including the sufficiency of funds in decommissioning trusts. In the event of an unanticipated early shutdown of Waterford 3, Entergy Louisiana may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning.
The nuclear industry continues to address susceptibility to stress corrosion cracking of certain materials associated with components within the reactor coolant system. The issue is applicable to Waterford 3 and is managed in accordance with standard industry practices and guidelines. A replacement reactor vessel head is being fabricated for Waterford 3 at this time. Routine inspections of the Waterford 3 reactor vessel head have identified no significant material degradation issues for that component, and inspections will continue at planned refueling outages.
Environmental Risks
Entergy Louisiana's facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Louisiana is in substantial compliance with environmental regulations currently applicable to its facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Litigation Risks
The state of Louisiana has proven to be an unusually litigious environment. Judges and juries in Louisiana have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy Louisiana uses legal and appropriate means to contest litigation threatened or filed against it, but the litigation environment poses a business risk.
Critical Accounting Estimates
The preparation of Entergy Louisiana's financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements could produce estimates that would have a material effect on the presentation of Entergy Louisiana's financial position or results of operations.
Nuclear Decommissioning Costs
Regulations require Entergy Louisiana to decommission the Waterford 3 nuclear power plant after the facility is taken out of service, and money is collected and deposited in trust funds during the facility's operating life in order to provide for this obligation. Entergy Louisiana conducts periodic decommissioning cost studies (typically updated every three to five years) to estimate the costs that will be incurred to decommission the facility. The following key assumptions have a significant effect on these estimates:
Entergy Louisiana collects substantially all of the projected costs of decommissioning Waterford 3 through rates charged to customers. The amounts collected through rates, which are based upon decommissioning cost studies, are deposited in decommissioning trust funds. These collections plus earnings on the trust fund investments are estimated to be sufficient to fund the future decommissioning costs. If decommissioning cost study estimates are changed and approved by regulators, collections from customers would also change.
SFAS 143
Entergy Louisiana implemented SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. Nuclear decommissioning costs comprise substantially all of Entergy Louisiana's asset retirement obligations, and the measurement and recording of Entergy Louisiana's decommissioning obligations changed significantly with the implementation of SFAS 143. The most significant differences in the measurement of these obligations are outlined below:
The net effect of implementing SFAS 143 for Entergy Louisiana was recorded as a regulatory asset, with no resulting impact on Entergy Louisiana's net income. Entergy Louisiana recorded this regulatory asset because its existing rate mechanism is based on the original or historical cost standard that allows Entergy Louisiana to recover all ultimate costs of decommissioning existing assets from current and future customers. Upon implementation of SFAS 143 in 2003, assets and liabilities increased by $305 million as a result of recording the asset retirement obligation at its fair value of $305 million as determined under SFAS 143, increasing total utility plant by $99 million, reducing accumulated depreciation by $82 million, and recording the related regulatory asset of $124 million.
In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that assumes a life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.
Unbilled Revenue
As discussed in Note 1 to the domestic utility companies and System Energy financial statements, Entergy Louisiana records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month, including fuel price. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period and fuel price fluctuations, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estimate of unbilled customer usage, and assumptions regarding price such as the fuel cost recovery mechanism.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004, and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed income securities, and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in both 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
Impact on 2005 |
|
Impact on Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$1,202 |
|
$13,992 |
Rate of return on plan assets |
|
(0.25%) |
|
$798 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$578 |
|
$3,393 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
|
0.25% |
|
$448 |
|
$2,719 |
Discount rate |
|
(0.25%) |
|
$264 |
|
$3,406 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 has had and may continue to have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
Total qualified pension cost for Entergy Louisiana in 2005 was $9.6 million. Entergy Louisiana anticipates 2006 qualified pension cost to increase to $11.1 million due to a decrease in the discount rate (from 6.00% to 5.90%) used to calculate benefit obligations. No required contributions were needed to its qualified pension plans in 2005. Under current law, Entergy Louisiana projects 2006 contributions will be $54 million. This projection may change pending passage of pension reform legislation. The increase in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004.
Entergy Louisiana's qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, Entergy Louisiana was required to recognize an additional minimum liability as prescribed by SFAS 87 at December 31, 2005, and 2004. At December 31, 2005, Entergy Louisiana increased its additional minimum liability for its qualified pension plans to $75 million from $39 million at December 31, 2004. At December 31, 2005, Entergy Louisiana decreased its intangible asset for the unrecognized prior service cost to $3.2 million from $4.8 million at December 31, 2004. Entergy Louisiana also increased its regulatory asset to $72.1 million at December 31, 2005 from $34.1 million at December 31, 2004. Net income for 2005, 2004, and 2003 was not impacted by the additional minimum pension liability.
Total postretirement health care and life insurance benefit costs for Entergy Louisiana in 2005 were $13.2 million, including $3 million in savings due to the estimated effect of future Medicare Part D subsidies. Entergy Louisiana expects 2006 postretirement health care and life insurance benefit costs to approximate $14.7 million, including $3.5 million in savings due to the estimated effect of future Medicare Part D subsidies. The increase in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.90%) and an increase in the health care cost trend rate used to calculate benefit obligations.
New Accounting Pronouncements
In December 2005, Entergy Louisiana implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy Louisiana's obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. The net effect of implementing FIN 47 for Entergy Louisiana was recorded as a regulatory asset, with no resulting effect on Entergy Louisiana's net income. Entergy Louisiana recorded this regulatory asset because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future customers. Upon implementation of FIN 47 in December 2005, assets and liabilities increased by $8.9 million as a result of recording the asset retirement obligation at its fair value as determined under FIN 47, increasing utility plant by $0.9 million, increasing accumulated depreciation by $0.6 million, and recording the related regulatory asset of $8.6 million.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Louisiana Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Entergy Louisiana Holdings, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, retained earnings, and cash flows (pages 232 through 236 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Entergy Louisiana Holdings, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Louisiana Holdings, Inc. and Subsidiaries adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $2,650,181 | $2,226,986 | $2,165,570 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 916,779 | 671,549 | 525,645 | |||
Purchased power | 872,026 | 667,893 | 668,337 | |||
Nuclear refueling outage expenses | 15,351 | 13,633 | 11,130 | |||
Other operation and maintenance | 356,084 | 367,824 | 376,770 | |||
Decommissioning | 18,785 | 21,958 | 20,569 | |||
Taxes other than income taxes | 73,860 | 68,999 | 70,084 | |||
Depreciation and amortization | 186,281 | 197,380 | 192,972 | |||
Other regulatory credits - net | (70,119) | (43,765) | (2,160) | |||
TOTAL | 2,369,047 | 1,965,471 | 1,863,347 | |||
OPERATING INCOME | 281,134 | 261,515 | 302,223 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 10,251 | 7,494 | 6,900 | |||
Interest and dividend income | 19,882 | 8,209 | 8,820 | |||
Miscellaneous - net | (7,539) | (929) | (3,100) | |||
TOTAL | 22,594 | 14,774 | 12,620 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 73,691 | 70,210 | 73,227 | |||
Other interest - net | 11,727 | 3,931 | 3,529 | |||
Allowance for borrowed funds used during construction | (6,591) | (4,822) | (5,475) | |||
TOTAL | 78,827 | 69,319 | 71,281 | |||
INCOME BEFORE INCOME TAXES | 224,901 | 206,970 | 243,562 | |||
Income taxes | 96,819 | 79,475 | 97,408 | |||
NET INCOME | 128,082 | 127,495 | 146,154 | |||
Preferred dividend requirements and other | 6,714 | 6,714 | 6,714 | |||
EARNINGS APPLICABLE TO | ||||||
COMMON STOCK | $121,368 | $120,781 | $139,440 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $128,082 | $127,495 | $146,154 | |||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||
Reserve for regulatory adjustments | (13,674) | 14,076 | 1,858 | |||
Other regulatory credits - net | (70,119) | (43,765) | (2,160) | |||
Depreciation, amortization, and decommissioning | 205,066 | 219,338 | 213,541 | |||
Deferred income taxes and investment tax credits | 225,588 | 75,078 | 859,157 | |||
Changes in working capital: | ||||||
Receivables | (112,828) | 4,364 | (45,735) | |||
Accounts payable | 40,382 | 4,455 | 30,174 | |||
Taxes accrued | 40,832 | 89,079 | (804,805) | |||
Interest accrued | 10,004 | (1,791) | (10,324) | |||
Deferred fuel costs | (13,231) | 21,955 | (56,211) | |||
Other working capital accounts | (26,873) | 20,693 | 10,395 | |||
Provision for estimated losses and reserves | 512 | 6,119 | 12,194 | |||
Changes in other regulatory assets | (111,641) | (14,456) | 59,169 | |||
Other | (122,310) | (16,056) | (59,639) | |||
Net cash flow provided by operating activities | 179,790 | 506,584 | 353,768 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (389,220) | (240,283) | (257,754) | |||
Allowance for equity funds used during construction | 10,251 | 7,494 | 6,900 | |||
Nuclear fuel purchases | (54,498) | - - | (41,525) | |||
Proceeds from the sale/leaseback of nuclear fuel | 54,158 | - - | 41,525 | |||
Payment for purchase of plant | (162,075) | - - | - - | |||
Proceeds from nuclear decommissioning trust fund sales | 107,291 | 35,987 | 53,479 | |||
Investment in nuclear decommissioning trust funds | (115,552) | (48,602) | (70,985) | |||
Change in money pool receivable - net | 40,549 | (40,549) | 18,854 | |||
Changes in other investments - net | - - | 2,173 | (12) | |||
Other regulatory investments | (40,357) | - - | - - | |||
Net cash flow used in investing activities | (549,453) | (283,780) | (249,518) | |||
FINANCING ACTIVITIES | ||||||
Proceeds from the issuance of: | ||||||
Long-term debt | 401,928 | 282,745 | - - | |||
Preferred stock | 97,982 | - - | - - | |||
Retirement of long-term debt | (219,374) | (203,756) | (296,366) | |||
Change in money pool payable - net | 68,677 | (41,317) | 41,317 | |||
Changes in short-term borrowings | 40,000 | - - | - - | |||
Dividends paid: | ||||||
Common stock | (51,600) | (116,500) | (145,500) | |||
Preferred stock | (6,714) | (6,714) | (6,714) | |||
Net cash flow provided by (used in) financing activities | 330,899 | (85,542) | (407,263) | |||
Net increase (decrease) in cash and cash equivalents | (38,764) | 137,262 | (303,013) | |||
Cash and cash equivalents at beginning of period | 146,049 | 8,787 | 311,800 | |||
Cash and cash equivalents at end of period | $107,285 | $146,049 | $8,787 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $71,831 | $73,170 | $84,089 | |||
Income taxes | $11,116 | ($70,650) | $35,128 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $107,285 | $3,875 | ||
Temporary cash investments - at cost, | ||||
which approximates market | - - | 142,174 | ||
Total cash and cash equivalents | 107,285 | 146,049 | ||
Accounts receivable: | ||||
Customer | 176,169 | 88,154 | ||
Allowance for doubtful accounts | (6,141) | (3,135) | ||
Associated companies | 24,453 | 43,121 | ||
Other | 12,553 | 13,070 | ||
Accrued unbilled revenues | 149,908 | 143,453 | ||
Total accounts receivable | 356,942 | 284,663 | ||
Deferred fuel costs | 21,885 | 8,654 | ||
Accumulated deferred income taxes | 3,884 | 12,712 | ||
Materials and supplies - at average cost | 92,275 | 77,665 | ||
Deferred nuclear refueling outage costs | 15,337 | 5,605 | ||
Prepayments and other | 185,416 | 6,861 | ||
TOTAL | 783,024 | 542,209 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 14,230 | 14,230 | ||
Decommissioning trust funds | 187,101 | 172,083 | ||
Non-utility property - at cost (less accumulated depreciation) | 21,019 | 21,176 | ||
Other | 4 | 4 | ||
TOTAL | 222,354 | 207,493 | ||
UTILITY PLANT | ||||
Electric | 6,233,711 | 5,985,889 | ||
Property under capital lease | 250,610 | 250,964 | ||
Construction work in progress | 415,475 | 188,848 | ||
Nuclear fuel under capital lease | 58,492 | 31,655 | ||
TOTAL UTILITY PLANT | 6,958,288 | 6,457,356 | ||
Less - accumulated depreciation and amortization | 2,805,944 | 2,799,936 | ||
UTILITY PLANT - NET | 4,152,344 | 3,657,420 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 104,893 | 132,686 | ||
Other regulatory assets | 498,542 | 302,456 | ||
Long-term receivables | 8,222 | 10,736 | ||
Other | 32,523 | 25,994 | ||
TOTAL | 644,180 | 471,872 | ||
TOTAL ASSETS | $5,801,902 | $4,878,994 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $- | $55,000 | ||
Notes payable | 40,000 | - - | ||
Accounts payable: | ||||
Associated companies | 121,382 | 57,681 | ||
Other | 398,507 | 128,523 | ||
Customer deposits | 66,705 | 66,963 | ||
Taxes accrued | - - | 7,268 | ||
Interest accrued | 28,442 | 18,438 | ||
Obligations under capital leases | 22,753 | 22,753 | ||
Other | 8,721 | 10,428 | ||
TOTAL | 686,510 | 367,054 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 2,055,083 | 1,805,410 | ||
Accumulated deferred investment tax credits | 92,439 | 96,130 | ||
Obligations under capital leases | 35,740 | 8,903 | ||
Other regulatory liabilities | 58,129 | 51,260 | ||
Decommissioning | 221,291 | 347,255 | ||
Accumulated provisions | 93,165 | 92,653 | ||
Long-term debt | 1,172,400 | 930,695 | ||
Other | 146,576 | 106,815 | ||
TOTAL | 3,874,823 | 3,439,121 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 200,500 | 100,500 | ||
Common stock, no par value, authorized 250,000,000 | ||||
shares; issued 165,173,180 shares in 2005 | ||||
and 2004 | 1,088,900 | 1,088,900 | ||
Capital stock expense and other | (3,736) | (1,718) | ||
Retained earnings | 74,905 | 5,137 | ||
Less - treasury stock, at cost (18,202,573 shares in 2005 and 2004) | 120,000 | 120,000 | ||
TOTAL | 1,240,569 | 1,072,819 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,801,902 | $4,878,994 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
Retained Earnings, January 1 | $5,137 | $856 | $6,916 | |||
Add: | ||||||
Net income | 128,082 | 127,495 | 146,154 | |||
Deduct: | ||||||
Dividends declared: | ||||||
Preferred stock | 6,714 | 6,714 | 6,714 | |||
Common stock | 51,600 | 116,500 | 145,500 | |||
Total | 58,314 | 123,214 | 152,214 | |||
Retained Earnings, December 31 | $74,905 | $5,137 | $856 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY LOUISIANA HOLDINGS, INC.
AND SUBSIDIARIES AND ENTERGY LOUISIANA, LLC |
||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(In Thousands) | ||||||||||
Operating revenues | $2,650,181 | $2,226,986 | $2,165,570 | $1,815,352 | $1,901,913 | |||||
Net Income | $128,082 | $127,495 | $146,154 | $144,709 | $132,550 | |||||
Total assets - Entergy Louisiana Holdings, Inc. | $5,801,902 | $4,878,994 | $4,674,539 | $4,753,704 | $4,149,701 | |||||
Total assets - Entergy Louisiana, LLC | $5,855,053 | $4,845,597 | $4,641,142 | $4,720,307 | $4,116,304 | |||||
Long-term obligations (1) | $1,208,140 | $939,598 | $917,247 | $919,319 | $1,197,473 | |||||
(1) Included long-term debt (excluding currently maturing debt) and noncurrent capital lease obligations. | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Millions) | ||||||||||
Electric Operating Revenues: | ||||||||||
Residential | $828 | $770 | $739 | $638 | $658 | |||||
Commercial | 539 | 501 | 473 | 403 | 429 | |||||
Industrial | 834 | 779 | 723 | 637 | 760 | |||||
Governmental | 41 | 38 | 41 | 36 | 39 | |||||
Total retail | 2,242 | 2,088 | 1,976 | 1,714 | 1,886 | |||||
Sales for resale: | ||||||||||
Associated companies | 339 | 96 | 102 | 8 | 25 | |||||
Non-associated companies | 14 | 13 | 12 | 11 | 23 | |||||
Other | 55 | 30 | 76 | 82 | (32) | |||||
Total | $2,650 | $2,227 | $2,166 | $1,815 | $1,902 | |||||
Billed Electric Energy Sales (GWh): | ||||||||||
Residential | 8,559 | 8,842 | 8,795 | 8,780 | 8,255 | |||||
Commercial | 5,554 | 5,762 | 5,622 | 5,538 | 5,369 | |||||
Industrial | 12,348 | 13,140 | 12,870 | 14,738 | 14,402 | |||||
Governmental | 428 | 439 | 491 | 510 | 498 | |||||
Total retail | 26,889 | 28,183 | 27,778 | 29,566 | 28,524 | |||||
Sales for resale: | ||||||||||
Associated companies | 2,451 | 1,129 | 1,344 | 146 | 381 | |||||
Non-associated companies | 109 | 122 | 132 | 139 | 334 | |||||
Total | 29,449 | 29,434 | 29,254 | 29,851 | 29,239 | |||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
Entergy Louisiana, LLC:
We have audited the accompanying balance sheets of Entergy Louisiana, LLC as of December 31, 2005 and 2004 and the related statements of income, members' equity, and cash flows (pages 239 through 244 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Louisiana LLC, as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Louisiana, LLC adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY LOUISIANA, LLC | ||||||
INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $2,650,181 | $2,226,986 | $2,165,570 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 916,779 | 671,549 | 525,645 | |||
Purchased power | 872,026 | 667,893 | 668,337 | |||
Nuclear refueling outage expenses | 15,351 | 13,633 | 11,130 | |||
Other operation and maintenance | 356,084 | 367,824 | 376,770 | |||
Decommissioning | 18,785 | 21,958 | 20,569 | |||
Taxes other than income taxes | 73,860 | 68,999 | 70,084 | |||
Depreciation and amortization | 186,281 | 197,380 | 192,972 | |||
Other regulatory credits - net | (70,119) | (43,765) | (2,160) | |||
TOTAL | 2,369,047 | 1,965,471 | 1,863,347 | |||
OPERATING INCOME | 281,134 | 261,515 | 302,223 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 10,251 | 7,494 | 6,900 | |||
Interest and dividend income | 19,882 | 8,209 | 8,820 | |||
Miscellaneous - net | (7,539) | (929) | (3,100) | |||
TOTAL | 22,594 | 14,774 | 12,620 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 73,691 | 70,210 | 73,227 | |||
Other interest - net | 11,727 | 3,931 | 3,529 | |||
Allowance for borrowed funds used during construction | (6,591) | (4,822) | (5,475) | |||
TOTAL | 78,827 | 69,319 | 71,281 | |||
INCOME BEFORE INCOME TAXES | 224,901 | 206,970 | 243,562 | |||
Income taxes | 96,819 | 79,475 | 97,408 | |||
NET INCOME AND EARNINGS APPLICABLE TO COMMON EQUITY |
$128,082 | $127,495 | $146,154 | |||
See Notes to Respective Financial Statements. | ||||||
(Page left blank intentionally)
ENTERGY LOUISIANA, LLC | ||||||
STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $128,082 | $127,495 | $146,154 | |||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||
Reserve for regulatory adjustments | (13,674) | 14,076 | 1,858 | |||
Other regulatory credits - net | (70,119) | (43,765) | (2,160) | |||
Depreciation, amortization, and decommissioning | 205,066 | 219,338 | 213,541 | |||
Deferred income taxes and investment tax credits | 124,679 | 75,078 | 859,157 | |||
Changes in working capital: | ||||||
Receivables | (112,828) | 4,364 | (45,735) | |||
Accounts payable | 40,382 | 4,455 | 30,174 | |||
Taxes accrued | 141,741 | 89,079 | (804,805) | |||
Interest accrued | 10,004 | (1,791) | (10,324) | |||
Deferred fuel costs | (13,231) | 21,955 | (56,211) | |||
Other working capital accounts | (26,873) | 20,693 | 10,395 | |||
Provision for estimated losses and reserves | 512 | 6,119 | 12,194 | |||
Changes in other regulatory assets | (111,641) | (14,456) | 59,169 | |||
Other | (131,024) | (22,770) | (66,353) | |||
Net cash flow provided by operating activities | 171,076 | 499,870 | 347,054 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (389,220) | (240,283) | (257,754) | |||
Allowance for equity funds used during construction | 10,251 | 7,494 | 6,900 | |||
Nuclear fuel purchases | (54,498) | - - | (41,525) | |||
Proceeds from the sale/leaseback of nuclear fuel | 54,158 | - - | 41,525 | |||
Payment for purchase of plant | (162,075) | - - | - - | |||
Proceeds from nuclear decommissioning trust fund sales | 107,291 | 35,987 | 53,479 | |||
Investment in nuclear decommissioning trust funds | (115,552) | (48,602) | (70,985) | |||
Change in money pool receivable - net | 40,549 | (40,549) | 18,854 | |||
Change in other investments - net | - - | 2,173 | (12) | |||
Other regulatory investments | (40,357) | - - | - - | |||
Net cash flow used in investing activities | (549,453) | (283,780) | (249,518) | |||
FINANCING ACTIVITIES | ||||||
Proceeds from the issuance of: | ||||||
Long-term debt | 401,928 | 282,745 | - - | |||
Preferred stock | 97,982 | - - | - - | |||
Retirement of long-term debt | (219,374) | (203,756) | (296,366) | |||
Change in money pool payable - net | 68,677 | (41,317) | 41,317 | |||
Changes in short-term borrowings | 40,000 | - - | - - | |||
Dividends paid: | ||||||
Common equity | (51,600) | (116,500) | (145,500) | |||
Net cash flow provided by (used in) financing activities | 337,613 | (78,828) | (400,549) | |||
Net increase (decrease) in cash and cash equivalents | (40,764) | 137,262 | (303,013) | |||
Cash and cash equivalents at beginning of period | 146,049 | 8,787 | 311,800 | |||
Cash and cash equivalents at end of period | $105,285 | $146,049 | $8,787 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $71,831 | $73,170 | $84,089 | |||
Income taxes | $11,116 | ($70,650) | $35,128 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $105,285 | $3,875 | ||
Temporary cash investments - at cost, | ||||
which approximates market | - - | 142,174 | ||
Total cash and cash equivalents | 105,285 | 146,049 | ||
Accounts receivable: | ||||
Customer | 176,169 | 88,154 | ||
Allowance for doubtful accounts | (6,141) | (3,135) | ||
Associated companies | 24,453 | 43,121 | ||
Other | 12,553 | 13,070 | ||
Accrued unbilled revenues | 149,908 | 143,453 | ||
Total accounts receivable | 356,942 | 284,663 | ||
Deferred fuel costs | 21,885 | 8,654 | ||
Accumulated deferred income taxes | 3,884 | 12,712 | ||
Materials and supplies - at average cost | 92,275 | 77,665 | ||
Deferred nuclear refueling outage costs | 15,337 | 5,605 | ||
Prepayments and other | 173,055 | 6,861 | ||
TOTAL | 768,663 | 542,209 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Decommissioning trust funds | 187,101 | 172,083 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,852 | 2,009 | ||
Other | 4 | 4 | ||
TOTAL | 188,957 | 174,096 | ||
UTILITY PLANT | ||||
Electric | 6,233,711 | 5,985,889 | ||
Property under capital lease | 250,610 | 250,964 | ||
Construction work in progress | 415,475 | 188,848 | ||
Nuclear fuel under capital lease | 58,492 | 31,655 | ||
TOTAL UTILITY PLANT | 6,958,288 | 6,457,356 | ||
Less - accumulated depreciation and amortization | 2,805,944 | 2,799,936 | ||
UTILITY PLANT - NET | 4,152,344 | 3,657,420 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 104,893 | 132,686 | ||
Other regulatory assets | 498,542 | 302,456 | ||
Long-term receivables | 8,222 | 10,736 | ||
Other | 133,432 | 25,994 | ||
TOTAL | 745,089 | 471,872 | ||
TOTAL ASSETS | $5,855,053 | $4,845,597 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
LIABILITIES AND MEMBERS' EQUITY | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $- | $55,000 | ||
Notes payable | 40,000 | - - | ||
Accounts payable: | ||||
Associated companies | 121,382 | 57,681 | ||
Other | 398,507 | 128,523 | ||
Customer deposits | 66,705 | 66,963 | ||
Taxes accrued | 88,548 | 7,268 | ||
Interest accrued | 28,442 | 18,438 | ||
Obligations under capital leases | 22,753 | 22,753 | ||
Other | 8,721 | 10,428 | ||
TOTAL | 775,058 | 367,054 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 2,055,083 | 1,805,410 | ||
Accumulated deferred investment tax credits | 92,439 | 96,130 | ||
Obligations under capital leases | 35,740 | 8,903 | ||
Other regulatory liabilities | 58,129 | 51,260 | ||
Decommissioning | 221,291 | 347,255 | ||
Accumulated provisions | 93,165 | 92,653 | ||
Long-term debt | 1,172,400 | 930,695 | ||
Other | 146,576 | 113,534 | ||
TOTAL | 3,874,823 | 3,445,840 | ||
Commitments and Contingencies | ||||
MEMBERS' EQUITY | ||||
Preferred stock without sinking fund | 100,000 | - - | ||
Members' equity | 1,105,172 | 1,032,703 | ||
TOTAL | 1,205,172 | 1,032,703 | ||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $5,855,053 | $4,845,597 | ||
See Notes to Respective Financial Statements. |
ENTERGY LOUISIANA, LLC | |||||
STATEMENTS OF MEMBERS' EQUITY | |||||
For the Years Ended December 31, | |||||
2005 | 2004 | 2003 | |||
(In Thousands) | |||||
Members' Equity, January 1 | $1,032,703 | $1,021,716 | $1,021,070 | ||
Add: | |||||
Net income | 128,082 | 127,495 | 146,154 | ||
Total | 128,082 | 127,495 | 146,154 | ||
Deduct: | |||||
Dividends declared: | |||||
Common equity | 51,600 | 116,500 | 145,500 | ||
Other | 4,013 | 8 | 8 | ||
Total | 55,613 | 116,508 | 145,508 | ||
Members' Equity, December 31 | $1,105,172 | $1,032,703 | $1,021,716 | ||
See Notes to Respective Financial Statements. | |||||
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Katrina
In August 2005, Hurricane Katrina hit Entergy Mississippi's service territory causing power outages and significant infrastructure damage to Entergy Mississippi's distribution and transmission systems. Total restoration costs for the repair and/or replacement of Entergy Mississippi's electric facilities damaged by Hurricane Katrina, and business continuity costs, and a small amount of damage caused by Hurricane Rita, are estimated to be $120 million, including $38.8 million in construction expenditures and $81.2 million recorded as regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales.
Entergy Mississippi has recorded accruals for the portion of the estimated storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in its service territories and communications with local regulators, Entergy Mississippi recorded assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. In December 2005, Entergy Mississippi filed with the MPSC a notice of intent to change rates by implementing a storm damage rider for costs incurred through November 30, 2005 and intends to make a second filing in late spring of 2006 to recover additional storm restoration costs incurred after November 30, 2005. The filing is discussed below in "Significant Factors and Known Trends." Because Entergy Mississippi has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is un able to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs and incremental losses it may ultimately recover, or the timing of such recovery.
Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies.
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through Underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. There is an aggregati on limit of $1 billion for all parties insured by OIL for any one occurrence, and Entergy has been notified by OIL that it expects claims for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for Entergy and each of the affected domestic utility companies, working with insurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy Mississippi currently estimates that its net insurance recoveries for the losses caused by the hurricanes, including the effect of the OIL aggregation limit being exceeded, will be approximately $4 million.
In December 2005, the U.S. Congress passed the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding to be provided to publicly owned utilities. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding.
Results of Operations
Net Income
2005 Compared to 2004
Net income decreased $11.4 million primarily due to lower net revenue, higher taxes other than income taxes, and higher depreciation and amortization expenses.
2004 Compared to 2003
Net income increased $6.4 million primarily due to higher net revenue partially offset by higher other operation and maintenance expenses and higher taxes other than income taxes.
Net Revenue
2005 Compared to 2004
Net revenue, which is Entergy Mississippi's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2005 to 2004.
Amount |
||
(In Millions) |
||
2004 net revenue |
$443.5 |
|
Reserve Equalization |
(3.0) |
|
Price applied to unbilled sales |
(2.1) |
|
Volume/weather |
6.0 |
|
Other |
(4.9) |
|
2005 net revenue |
$439.5 |
The reserve equalization variance is primarily due to a revision of reserve equalization payments between Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations, and Entergy Louisiana's purchase of the Perryville plant, which also affected the reserve calculation.
The price applied to unbilled sales variance is due to lower cost per kWh that occurs when sales increase and a decrease in Grand Gulf rates applied to unbilled sales in 2005. See "Critical Accounting Estimates" below and Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for unbilled revenues.
The volume/weather variance is primarily due to more favorable weather on billed sales in 2005 compared to 2004. Billed usage increased a total of 363 GWh in the service territory.
The other variance includes several individually insignificant items.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to an increase of $48.6 million in fuel cost recovery revenues due to higher fuel rates and an increase of $30.5 million in gross wholesale revenue as a result of increased volume due to higher net generation and purchases in excess of net area demand resulting in more energy available for resale sales coupled with an increase in the average price of energy available for resale.
Fuel and purchased power expenses increased primarily due to increases in the market prices of natural gas and purchased power. The increase was partially offset by the under-recovery of fuel and purchased power costs as a result of higher fuel costs. Refer to Note 2 to the domestic and System Energy financial statements for discussion of the energy cost recovery rider.
Other regulatory charges increased primarily due to the over-recovery of costs through the power management recovery rider as a result of gains recorded on gas hedging contracts in addition to the over-recovery through the Grand Gulf rider of Grand Gulf capacity charges. The rider have no material effect on net income due to the refund and/or recovery through quarterly adjustments to the rider.
2004 Compared to 2003
Net revenue, which is Entergy Mississippi's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2004 to 2003.
Amount |
||
(In Millions) |
||
2003 net revenue |
$426.6 |
|
Volume/weather |
6.4 |
|
Net wholesale revenue |
5.0 |
|
Other |
5.5 |
|
2004 net revenue |
$443.5 |
The volume/weather variance resulted from an increase of 247 GWh in weather-adjusted usage, partially offset by the effect of milder weather on billed sales.
The net wholesale revenue variance resulted from an increase in energy available for resale sales, partially offset by a decrease in the average price of energy supplied for affiliated sales.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to an increase of $174.0 million in fuel cost recovery revenues due to higher fuel rates and an increase of $26.3 million in gross wholesale revenue. The increase was partially offset by a decrease of $37.6 million in Grand Gulf revenue as a result of the cessation of the Grand Gulf Accelerated Tariff in July 2003.
Fuel and purchased power expenses increased primarily due to the over-recovery of fuel and purchased power costs as a result of higher fuel rates. Entergy Mississippi's fuel rates include an energy cost recovery rider to recover projected energy costs. Actual fuel and purchased power costs were lower than those projected in the computation of the energy cost factors for the third quarter of 2004 which contributed to the over-recovery of fuel and purchased power costs. The MPSC has allowed Entergy Mississippi to refund these over-recoveries in the second and third quarters of 2005. Refer to Note 2 to the domestic and System Energy financial statements for discussion of the energy cost recovery rider.
Other regulatory credits increased primarily due to the under-recovery of costs through the Grand Gulf rider of Grand Gulf capacity charges. The rider has no material effect on net income due to the refund and/or recovery through quarterly adjustments to the rider.
Other Income Statement Variances
2005 Compared to 2004
Taxes other than income taxes increased primarily due to higher assessed values for ad valorem tax purposes and higher franchise taxes in 2005.
Depreciation and amortization expenses increased primarily due to an increase in plant in service.
2004 Compared to 2003
Other operation and maintenance expenses increased primarily due to:
The increase was partially offset by the absence of the voluntary severance program accruals of $7.1 million that occurred in 2003.
Taxes other than income taxes increased primarily due to a higher assessment of ad valorem and franchise taxes compared to the same period in 2003.
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 35.3%, 33.5%, and 33.9%, respectively. See Note 3 to the domestic utility companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Thousands) |
|||||||
Cash and cash equivalents at beginning of period |
$80,396 |
$63,838 |
$147,721 |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
4,935 |
257,687 |
266,662 |
||||
Investing activities |
(138,510) |
(151,013) |
(277,869) |
||||
Financing activities |
57,702 |
(90,116) |
(72,676) |
||||
Net increase (decrease) in cash and cash equivalents |
(75,873) |
16,558 |
(83,883) |
||||
Cash and cash equivalents at end of period |
$4,523 |
$80,396 |
$63,838 |
Operating Activities
Cash flow from operations decreased by $252.8 million in 2005 primarily due to a decrease in recovery of deferred fuel and purchased power costs and also due to storm restoration spending caused by Hurricane Katrina.
Cash flow from operations decreased by $9.0 million in 2004 primarily due to a $12 million income tax payment in 2004 compared to a $78 million income tax refund in 2003 and decreased collections of customer receivables, almost entirely offset by an increase in recovery of deferred fuel and purchased power costs.
In addition to the direct costs caused by the storms, Hurricanes Katrina and Rita have had other impacts that have affected Entergy Mississippi's liquidity position. The Entergy New Orleans bankruptcy caused fuel and power suppliers to increase their scrutiny of the remaining domestic utility companies with the concern that one of them could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power prices, thereby increasing Entergy Mississippi's ongoing costs, which consumed available credit lines more quickly and in some instances required the posting of additional collateral. Entergy managed through these events thus far, adequately supplied Entergy Mississippi with fuel and power, and as a result of steps taken by it regarding its storm costs expects to have adequate liquidity and credit to continue supplying Entergy Mississippi with fuel and power.
In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi realize d $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million, Entergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy New Orleans' share is $27 million, and System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net oper ating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.
Investing Activities
Net cash used in investing activities decreased $12.5 million in 2005 primarily due to money pool activity, partially offset by the maturity in 2004 of $7.5 million of other temporary investments that had been made in 2003, which provided cash in 2004.
Capital expenditures incurred during 2005 as a result of Hurricane Katrina were $22.4 million.
Net cash used in investing activities decreased $126.9 million in 2004 primarily due to:
Financing Activities
Financing activities provided $57.7 million of cash in 2005 compared to using $90.1 million in 2004 primarily due to money pool activity, the net retirement of $39.9 million in long-term debt in 2004, and a decrease of $24.9 million in common stock dividends paid.
Net cash used in financing activities increased $17.4 million in 2004 primarily due to an increase of $15.1 million in common stock dividends paid.
See Note 5 to the domestic utility companies and System Energy financial statements for details on long-term debt.
Capital Structure
Entergy Mississippi's capitalization is balanced between equity and debt, as shown in the following table. The decrease in the debt to capital percentage as of December 31, 2005 is primarily due to increased retained earnings.
|
|
December 31, |
|
December 31, |
|
|
|
|
|
Net debt to net capital |
|
52.6% |
|
51.1% |
Effect of subtracting cash from debt |
|
0.1% |
|
3.1% |
Debt to capital |
|
52.7% |
|
54.2% |
Net debt consists of debt less cash and cash equivalents. Debt consists of capital lease obligations and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi's financial condition.
Uses of Capital
Entergy Mississippi requires capital resources for:
Following are the amounts of Entergy Mississippi's planned construction and other capital investments, and existing debt obligations:
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
After 2010 |
|
Total |
|
(In Millions) |
||||||||
Planned construction and |
|
|
|
|
|
|
|
|
|
capital investment (1) |
$219 |
|
$270 |
|
N/A |
|
N/A |
|
$489 |
Long-term debt |
$- |
|
$100 |
|
$- |
|
$595 |
|
$695 |
Operating leases |
$8 |
|
$9 |
|
$6 |
|
$9 |
|
$32 |
Purchase obligations (2) |
$186 |
|
$330 |
|
$328 |
|
$1,839 |
|
$2,683 |
(1) |
Includes approximately $110 to $123 million annually for maintenance capital, which is planned spending on routine capital projects that are necessary to support reliability of service, equipment or systems, and to support normal customer growth. |
(2) |
Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Mississippi, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the domestic utility companies and System Energy financial statements. |
In addition to the planned spending in the table above, Entergy Mississippi also expects to make $7 million of payments in 2006 related to Hurricane Katrina restoration work. Also, Entergy Mississippi expects to contribute $16.4 million to its pension plans and $5 million to other postretirement plans in 2006.
The planned capital investment estimate for Entergy Mississippi reflects capital required to support existing business, customer growth, and the anticipated acquisition of additional generation supply resources. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints, environmental compliance, market volatility, economic trends, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the domestic utility companies and System Energy financial statements.
In January 2006, Entergy Mississippi purchased for $88 million the Attala power plant, a 480 MW natural gas-fired, combined-cycle generating facility owned by Central Mississippi Generating Company (CMGC). Entergy Mississippi plans to invest approximately $20 million in facility upgrades at the Attala plant plus $3 million in other costs, bringing the total capital cost of the project to approximately $111 million. In November 2005, the MPSC issued an order approving the acquisition of the Attala plant. In December 2005, the MPSC issued an order approving the investment cost recovery through the power management rider and limited the recovery to a period that begins with the closing date of the purchase and ends the earlier of the date costs are incorporated into base rates or December 31, 2006. The planned construction and other capital investments line includes the majority of the estimated cost of the Attala acquisition as a 2006 capital commitment.
As a wholly-owned subsidiary, Entergy Mississippi dividends its earnings to Entergy Corporation at a percentage determined monthly. Entergy Mississippi's long-term debt indentures restrict the amount of retained earnings available for the payment of cash dividends or other distributions on its common and preferred stock. As of December 31, 2005, Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of $68.5 million.
Sources of Capital
Entergy Mississippi's sources to meet its capital requirements include:
Entergy Mississippi may refinance or redeem debt and preferred stock prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common and preferred stock issuances by Entergy Mississippi require prior regulatory approval. Preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and other agreements. Entergy Mississippi has sufficient capacity under these tests to meet its foreseeable capital needs.
In June 2005, Entergy Mississippi issued 1,200,000 shares of $25 par value 6.25% Series Preferred Stock, all of which are outstanding as of December 31, 2005. The dividends are cumulative and are payable quarterly. The preferred stock is redeemable on or after July 1, 2010, at Entergy Mississippi's option, at the call price of $25 per share. The proceeds from this issuance were used in the third quarter of 2005 to redeem $20 million of Entergy Mississippi's $100 par value 8.36% Series Preferred Stock and $10 million of Entergy Mississippi's $100 par value 7.44% Series Preferred Stock.
In January 2006, Entergy Mississippi issued $100 million of 5.92% Series of First Mortgage Bonds due February 2016. Entergy Mississippi used the proceeds to purchase the Attala power plant from Central Mississippi Generating Company, LLC, discussed above, and to repay short-term indebtedness.
Prior to February 8, 2006, borrowings and securities issuances by Entergy Mississippi were limited to amounts authorized by the SEC. Effective with repeal of PUHCA 1935 on that date, the FERC, under the Federal Power Act, has jurisdiction over its securities issuances. Entergy Mississippi has obtained a short-term borrowing authorization from the FERC under which it may borrow through March 31, 2008, up to the aggregate amount, at any one time outstanding, of $175 million.
Under a savings provision in PUHCA 2005 which repealed PUHCA 1935, Entergy Mississippi can rely, after the repeal, on the long-term securities issuance authority in its SEC PUHCA 1935 order unless superceded by FERC authorization. Under its SEC order, Entergy Mississippi cannot incur additional indebtedness or issue other securities unless (a) it and Entergy Corporation maintain a common equity ratio of at least 30% and (b) with the exception of money pool borrowings, the security to be issued (if rated) and all outstanding securities of Entergy Mississippi, as well as all outstanding securities of Entergy Corporation, that are rated, are rated investment grade. See Note 4 to the domestic utility companies and System Energy financial statements for further discussion of Entergy Mississippi's short-term borrowing limits.
Entergy Mississippi's receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years:
2005 |
|
2004 |
|
2003 |
|
2002 |
(In Thousands) |
||||||
|
|
|
|
|
|
|
($84,066) |
|
$21,584 |
|
$22,076 |
|
$8,702 |
See Note 4 to the domestic utility companies and System Energy financial statements for a description of the money pool.
Significant Factors and Known Trends
State and Local Rate Regulation
The rates that Entergy Mississippi charges for electricity significantly influence its financial position, results of operations, and liquidity. Entergy Mississippi is closely regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the MPSC, is primarily responsible for approval of the rates charged to customers.
In December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. The notice proposes recovery of approximately $14.7 million, including carrying charges, annually over a 60-month period. A hearing on this matter is expected in April 2006. Entergy Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration costs associated with the hurricanes incurred after November 30, 2005.
Entergy Mississippi made its annual formula rate plan filing with the MPSC in March 2005 based on a 2004 test year. In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on a performance-adjusted ROE mid-point of 10.50%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.
Entergy Mississippi's fuel costs recovered from customers are subject to regulatory scrutiny. Entergy Mississippi's retail rate matters and proceedings, including fuel cost recovery-related issues are discussed more thoroughly in Note 2 to the domestic utility companies and System Energy financial statements.
Federal Regulation
System Agreement Proceedings
See "System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the proceeding at FERC involving the System Agreement and of other related proceedings.
Transmission
See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Interconnection Orders
See "Interconnection Orders" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Available Flowgate Capacity Proceeding
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Energy Policy Act of 2005
See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Utility Restructuring
The MPSC has recommended not pursuing open access at this time.
Market and Credit Risks
Entergy Mississippi has certain market and credit risks inherent in its business operations. Market risks represent the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement.
Critical Accounting Estimates
The preparation of Entergy Mississippi's financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements could produce estimates that would have a material impact on the presentation of Entergy Mississippi's financial position or results of operations.
Unbilled Revenue
As discussed in Note 1 to the domestic utility companies and System Energy financial statements, Entergy Mississippi records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estimate of unbilled customer usage, and assumptions reg arding price such as the fuel cost recovery mechanism.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed income securities, and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in both 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
Impact on 2005 |
|
Impact on Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$607 |
|
$6,909 |
Rate of return on plan assets |
|
(0.25%) |
|
$420 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$289 |
|
$1,594 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
|
0.25% |
|
$216 |
|
$1,344 |
Discount rate |
|
(0.25%) |
|
$132 |
|
$1,743 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 has had and may continue to have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
Total qualified pension cost for Entergy Mississippi in 2005 was $5 million. Entergy anticipates 2006 qualified pension cost to increase to $6 million. Entergy Mississippi contributed $1 million to its qualified pension plans in 2005, and under current law, projects 2006 contributions will be $16.4 million. In January 2006, $2.2 million was funded. All of the amount funded in January 2006 was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act. The rise in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004.
Entergy Mississippi's qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, Entergy Mississippi was required to recognize an additional minimum liability as prescribed by SFAS 87. At December 31, 2005, Entergy Mississippi increased its additional minimum liability for its qualified pension plans to $42.9 million from $23.5 million at December 31, 2004. Entergy Mississippi decreased its intangible asset for the unrecognized prior service cost to $2.4 million at December 31, 2005 from $3.3 million at December 31, 2004. Entergy Mississippi also increased the regulatory asset to $40.5 million at December 31, 2005 from $20.2 million at December 31, 2004. Net income for 2005, 2004, and 2003 was not impacted.
Total postretirement health care and life insurance benefit costs for Entergy Mississippi in 2005 were $4.4 million, including $1.8 million in savings due to the estimated effect of future Medicare Part D subsidies. Entergy Mississippi expects 2006 postretirement health care and life insurance benefit costs to approximate $5 million, including $2 million in savings due to the estimated effect of future Medicare Part D subsidies. The increase in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.90%) and an increase in the health care cost trend rate used to calculate benefit obligations.
New Accounting Pronouncements
In December 2005, Entergy Mississippi implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy Mississippi's obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. The net effect of implementing FIN 47 for Entergy Mississippi was recorded as a regulatory asset, with no resulting effect on Entergy Mississippi's net income. Entergy Mississippi recorded this regulatory asset because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future customers. Upon implementation of FIN 47 in December 2005, assets and liabilities increased by $4.0 million as a result of recording the asset retirement obligation at its fair value as determined under FIN 47, increasing utility plant by $0.4 million, increasing accumulated depreciation by $0.3 million, and recording the related regulatory asset of $3.9 million.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Mississippi, Inc.:
We have audited the accompanying balance sheets of Entergy Mississippi, Inc. as of December 31, 2005 and 2004, and the related statements of income, retained earnings, and cash flows (pages 258 through 262 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy Mississippi, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY MISSISSIPPI, INC. | ||||||
INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $1,306,543 | $1,213,629 | $1,035,360 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 136,870 | 335,271 | 155,168 | |||
Purchased power | 688,800 | 436,013 | 449,971 | |||
Other operation and maintenance | 176,202 | 178,007 | 174,192 | |||
Taxes other than income taxes | 58,540 | 53,443 | 47,734 | |||
Depreciation and amortization | 72,028 | 65,452 | 62,984 | |||
Other regulatory charges (credits) - net | 41,414 | (1,171) | 3,664 | |||
TOTAL | 1,173,854 | 1,067,015 | 893,713 | |||
OPERATING INCOME | 132,689 | 146,614 | 141,647 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 3,490 | 4,402 | 4,576 | |||
Interest and dividend income | 2,560 | 2,550 | 1,030 | |||
Miscellaneous - net | (1,613) | (1,508) | (2,242) | |||
TOTAL | 4,437 | 5,444 | 3,364 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 39,406 | 41,681 | 43,879 | |||
Other interest - net | 4,301 | 2,956 | 3,585 | |||
Allowance for borrowed funds used during construction | (2,636) | (3,116) | (3,942) | |||
TOTAL | 41,071 | 41,521 | 43,522 | |||
INCOME BEFORE INCOME TAXES | 96,055 | 110,537 | 101,489 | |||
Income taxes | 33,952 | 37,040 | 34,431 | |||
NET INCOME | 62,103 | 73,497 | 67,058 | |||
Preferred dividend requirements and other | 3,316 | 3,369 | 3,369 | |||
EARNINGS APPLICABLE TO | ||||||
COMMON STOCK | $58,787 | $70,128 | $63,689 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY MISSISSIPPI, INC. | ||||||
STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $62,103 | $73,497 | $67,058 | |||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||
Other regulatory charges (credits) - net | 41,414 | (1,171) | 3,664 | |||
Depreciation and amortization | 72,028 | 65,452 | 62,984 | |||
Deferred income taxes and investment tax credits | 158,004 | 61,829 | 34,836 | |||
Changes in working capital: | ||||||
Receivables | (33,549) | (15,386) | (9,805) | |||
Fuel inventory | 1,050 | 940 | 575 | |||
Accounts payable | 37,204 | 432 | 1,244 | |||
Taxes accrued | (69,377) | (27,759) | 74,487 | |||
Interest accrued | 1,164 | (1,285) | (5,922) | |||
Deferred fuel costs | (136,749) | 111,871 | 21,669 | |||
Other working capital accounts | 4,487 | 2,684 | 11,255 | |||
Provision for estimated losses and reserves | (3,283) | 2,789 | (1,137) | |||
Changes in other regulatory assets | (63,618) | 9,401 | (9,061) | |||
Other | (65,943) | (25,607) | 14,815 | |||
Net cash flow provided by operating activities | 4,935 | 257,687 | 266,662 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (163,584) | (163,413) | (188,995) | |||
Allowance for equity funds used during construction | 3,490 | 4,402 | 4,576 | |||
Change in money pool receivable - net | 21,584 | 492 | (13,374) | |||
Changes in other temporary investments - net | - | 7,506 | (7,506) | |||
Other regulatory investments | - | - - | (72,570) | |||
Net cash flow used in investing activities | (138,510) | (151,013) | (277,869) | |||
FINANCING ACTIVITIES | ||||||
Proceeds from the issuance of: | ||||||
Long-term debt | - | 178,510 | 292,393 | |||
Preferred stock | 29,151 | - - | - - | |||
Retirement of long-term debt | - | (218,457) | (330,000) | |||
Redemption of preferred stock | (30,269) | - - | - - | |||
Change in money pool payable - net | 84,066 | - - | - - | |||
Dividends paid: | ||||||
Common stock | (21,900) | (46,800) | (31,700) | |||
Preferred stock | (3,346) | (3,369) | (3,369) | |||
Net cash flow provided by (used in) financing activities | 57,702 | (90,116) | (72,676) | |||
Net increase (decrease) in cash and cash equivalents | (75,873) | 16,558 | (83,883) | |||
Cash and cash equivalents at beginning of period | 80,396 | 63,838 | 147,721 | |||
Cash and cash equivalents at end of period | $4,523 | $80,396 | $63,838 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $40,445 | $43,824 | $51,126 | |||
Income taxes | $4,446 | $11,995 | ($78,091) |
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $4,523 | $4,716 | ||
Temporary cash investment - at cost, | ||||
which approximates market | - - | 75,680 | ||
Total cash and cash equivalents | 4,523 | 80,396 | ||
Accounts receivable: | ||||
Customer | 102,202 | 68,821 | ||
Allowance for doubtful accounts | (1,826) | (1,126) | ||
Associated companies | 5,415 | 22,616 | ||
Other | 9,254 | 12,133 | ||
Accrued unbilled revenues | 33,712 | 34,348 | ||
Total accounts receivable | 148,757 | 136,792 | ||
Deferred fuel costs | 113,956 | - - | ||
Accumulated deferred income taxes | - - | 27,924 | ||
Fuel inventory - at average cost | 3,087 | 4,137 | ||
Materials and supplies - at average cost | 21,521 | 18,414 | ||
Prepayments and other | 62,759 | 15,413 | ||
TOTAL | 354,603 | 283,076 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 5,531 | 5,531 | ||
Non-utility property - at cost (less accumulated depreciation) | 6,199 | 6,465 | ||
TOTAL | 11,730 | 11,996 | ||
UTILITY PLANT | ||||
Electric | 2,473,035 | 2,385,465 | ||
Property under capital lease | 50 | 95 | ||
Construction work in progress | 119,354 | 89,921 | ||
TOTAL UTILITY PLANT | 2,592,439 | 2,475,481 | ||
Less - accumulated depreciation and amortization | 886,687 | 870,188 | ||
UTILITY PLANT - NET | 1,705,752 | 1,605,293 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 17,073 | 17,628 | ||
Other regulatory assets | 186,197 | 82,674 | ||
Long-term receivable | 3,270 | 4,510 | ||
Other | 32,418 | 31,009 | ||
TOTAL | 238,958 | 135,821 | ||
TOTAL ASSETS | $2,311,043 | $2,036,186 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $158,579 | $65,806 | ||
Other | 83,306 | 25,543 | ||
Customer deposits | 44,025 | 37,333 | ||
Taxes accrued | 33,121 | 40,106 | ||
Accumulated deferred income taxes | 13,233 | - - | ||
Interest accrued | 13,651 | 12,487 | ||
Deferred fuel costs | - - | 22,793 | ||
Obligations under capital leases | 40 | 43 | ||
Other | 2,739 | 8,341 | ||
TOTAL | 348,694 | 212,452 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 491,857 | 438,321 | ||
Accumulated deferred investment tax credits | 12,358 | 13,687 | ||
Obligations under capital leases | 11 | 52 | ||
Other regulatory liabilities | 34,368 | - - | ||
Retirement cost liabilities | 4,016 | - - | ||
Accumulated provisions | 9,436 | 12,718 | ||
Long-term debt | 695,146 | 695,073 | ||
Other | 91,588 | 76,071 | ||
TOTAL | 1,338,780 | 1,235,922 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 50,381 | 50,381 | ||
Common stock, no par value, authorized 15,000,000 | ||||
shares; issued and outstanding 8,666,357 shares in 2005 and 2004 | 199,326 | 199,326 | ||
Capital stock expense and other | (682) | (59) | ||
Retained earnings | 374,544 | 338,164 | ||
TOTAL | 623,569 | 587,812 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,311,043 | $2,036,186 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY MISSISSIPPI, INC. | ||||||
STATEMENTS OF RETAINED EARNINGS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
Retained Earnings, January 1 | $338,164 | $314,836 | $282,847 | |||
Add: | ||||||
Net income | 62,103 | 73,497 | 67,058 | |||
Deduct: | ||||||
Preferred dividend requirements and other | 3,316 | 3,369 | 3,369 | |||
Dividends declared on common stock | 21,900 | 46,800 | 31,700 | |||
Capital stock and other expenses | 507 | - - | - - | |||
Total | 25,723 | 50,169 | 35,069 | |||
Retained Earnings, December 31 | $374,544 | $338,164 | $314,836 | |||
See Notes to Respective Financial Statements. |
ENTERGY MISSISSIPPI, INC. | ||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(In Thousands) | ||||||||||
Operating revenues | $1,306,543 | $1,213,629 | $1,035,360 | $991,095 | $1,093,741 | |||||
Net Income | $62,103 | $73,497 | $67,058 | $52,408 | $39,620 | |||||
Total assets | $2,311,043 | $2,036,186 | $1,952,352 | $1,832,372 | $1,683,026 | |||||
Long-term obligations (1) | $695,157 | $695,125 | $655,051 | $510,240 | $589,937 | |||||
(1) Included long-term debt (excluding currently maturing debt) and noncurrent capital lease obligations. | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Millions) | ||||||||||
Electric Operating Revenues: | ||||||||||
Residential | $503 | $467 | $410 | $375 | $391 | |||||
Commercial | 421 | 397 | 342 | 310 | 328 | |||||
Industrial | 209 | 204 | 174 | 165 | 191 | |||||
Governmental | 41 | 38 | 32 | 29 | 31 | |||||
Total retail | 1,174 | 1,106 | 958 | 879 | 941 | |||||
Sales for resale: | ||||||||||
Associated companies | 62 | 39 | 21 | 63 | 111 | |||||
Non-associated companies | 37 | 30 | 21 | 15 | 21 | |||||
Other | 34 | 39 | 35 | 34 | 22 | |||||
Total | $1,307 | $1,214 | $1,035 | $991 | $1,095 | |||||
Billed Electric Energy Sales (GWh): | ||||||||||
Residential | 5,333 | 5,085 | 5,092 | 5,092 | 4,867 | |||||
Commercial | 4,630 | 4,518 | 4,476 | 4,445 | 4,322 | |||||
Industrial | 2,967 | 2,977 | 2,939 | 2,910 | 3,051 | |||||
Governmental | 411 | 398 | 384 | 382 | 381 | |||||
Total retail | 13,341 | 12,978 | 12,891 | 12,829 | 12,621 | |||||
Sales for resale: | ||||||||||
Associated companies | 516 | 305 | 112 | 1,123 | 1,728 | |||||
Non-associated companies | 420 | 393 | 331 | 197 | 289 | |||||
Total | 14,277 | 13,676 | 13,334 | 14,149 | 14,638 | |||||
ENTERGY NEW ORLEANS, INC. (Debtor-in-possession)
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Katrina
In August 2005, Hurricane Katrina caused catastrophic damage to Entergy New Orleans' service territory, including the effect of extensive flooding that resulted from levee breaks in and around the New Orleans area. The storms and flooding resulted in power outages, significant damage to electric distribution, transmission, and generation and gas infrastructure, and the loss of sales and customers due to mandatory evacuations and the destruction of homes and businesses. Total restoration costs for the repair and/or replacement of Entergy New Orleans' electric and gas facilities damaged by Hurricane Katrina and business continuity costs are estimated to be $275 million, including $184.1 million in construction expenditures and $90.9 million recorded as regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales. For instance, Entergy New Orleans estimates that lost net revenue due to Hurricane Katrina will total approximately $320 million through 2007. In addition, Entergy New Orleans estimates that the hurricanes caused $22 million of uncollectible U.S. Utility customer receivables.
The estimated storm restoration costs also do not include the longer-term accelerated replacement of the gas distribution system in New Orleans that Entergy New Orleans expects will be necessary due to the massive salt water intrusion into the system caused by the flooding in New Orleans. The salt water intrusion is expected to shorten the life of the gas distribution system, making it necessary to replace that system over time. Entergy New Orleans currently expects the cost of the gas system replacement to be $355 million, with the project beginning in 2008 and extending for many years thereafter.
Entergy New Orleans has recorded accruals for the portion of the estimated $275 million of storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in its service territories and communications with local regulators, Entergy New Orleans recorded assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. Because Entergy New Orleans has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs and incremental losses it may ultimately recover, or the timing of such recovery.
Entergy New Orleans has made power available to customers who can take service in most areas of its service territory. Some customers in the most devastated areas of New Orleans are unable to accept electric and gas service for a period of time that cannot be estimated. Entergy New Orleans estimates that lost non-fuel revenues in 2006 caused by Hurricane Katrina will be approximately $123 million. Entergy New Orleans's estimate of the revenue impact of customers who are currently unable to accept electric and gas service is subject to change, however, because of a range of uncertainties, in particular the timing of when individual customers will return to service. Restoration for many of these customers will follow major repairs or reconstruction of customer facilities, and will be contingent on validation by local authorities of habitability and electrical safety of customers' structures. As a result of the power outages associated with the hurricane, revenues and receivable coll ections were significantly lower than normal from September 2005 through December 2005. Because of the uncertainty regarding the collection of its outstanding accounts receivable related to the customer losses, Entergy New Orleans increased its allowance for doubtful accounts by $22 million, with a corresponding increase in regulatory assets.
Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies.
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through Underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. There is an aggregati on limit of $1 billion for all parties insured by OIL for any one occurrence, and Entergy has been notified by OIL that it expects claims for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for each of the affected domestic utility companies, working with insurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy New Orleans currently estimates that its net insurance recoveries for the losses caused by Hurricane Katrina, including the effect of the OIL aggregation limit being exceeded, will be approximately $250 million.
In December 2005, the U.S. Congress passed the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding to be provided to publicly owned utilities. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding.
Bankruptcy Proceedings
As a result of Hurricane Katrina Entergy New Orleans' cash receipts were significantly below normal levels due to the number of customers displaced by the storm and the extended interruption in customers' ability to take power. Entergy New Orleans' need to make cash payments continued, however, due to costs associated with fuel used before the hurricane outages along with recurring payments associated with fuel and purchased power contracts, in addition to storm restoration costs and other obligations. On September 23, 2005, Entergy New Orleans filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Louisiana seeking reorganization relief under the provisions of Chapter 11 of the United States Bankruptcy Code. Entergy New Orleans continues to operate its business as a debtor-in-possession (DIP) under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the bankruptc y court.
On September 26, 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility to provide funding to Entergy New Orleans during its business restoration efforts. The facility provides the ability for Entergy New Orleans to request funding from Entergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. On December 9, 2005, the bankruptcy court issued its order giving final approval for a $200 million debtor-in-possession credit facility and the priority and lien status of the indebtedness under the DIP credit agreement. The indenture trustee of Entergy New Orleans' first mortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee filing its notice of appeal, Entergy New Orleans, Entergy Corporation, and the indenture trustee filed with the bankruptcy court a motion to approve a settl ement among the parties. The settlement would result in the dismissal of the indenture trustee's appeal. The settlement is set for hearing in the bankruptcy court on March 22, 2006. The DIP credit agreement is discussed in further detail in the "Liquidity and Capital Resources" section below.
The bankruptcy court has also issued orders allowing Entergy New Orleans to pay certain pre-petition vendors deemed critical to its restoration efforts and allowing Entergy New Orleans to pay certain pre-petition wages, employee benefits, and employment-related taxes.
Entergy continues to work with the federal, state, and local authorities to resolve the bankruptcy in a manner that allows Entergy New Orleans' customers to be served by a financially viable entity as required by law. Key factors that will influence the timing and outcome of the Entergy New Orleans bankruptcy include:
The exclusivity period for filing a final plan of reorganization by Entergy New Orleans is currently scheduled to end on April 21, 2006, with solicitation of acceptances of the plan scheduled to be complete by June 20, 2006. If a party to the bankruptcy proceeding, including Entergy New Orleans, requests it, the bankruptcy court has the authority to extend these deadlines. In addition, the bankruptcy judge has set a date of April 19, 2006 by which creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file their proofs of claim in the bankruptcy case.
Results of Operations
Net Income
2005 Compared to 2004
Net income decreased $26.8 million primarily due to lower net revenue and higher depreciation and amortization expenses, partially offset by lower other operation and maintenance expenses and lower interest charges.
2004 Compared to 2003
Net income increased $20.2 million primarily due to higher net revenue.
Net Revenue
2005 Compared to 2004
Net revenue, which is Entergy New Orleans' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2005 to 2004.
Amount |
||
(In Millions) |
||
2004 net revenue |
$239.0 |
|
Volume/weather |
(59.7) |
|
Net gas revenue |
(16.2) |
|
Net wholesale revenue |
18.1 |
|
Other |
(2.0) |
|
2005 net revenue |
$179.2 |
The volume/weather variance is due to a decrease in electricity usage in the service territory caused by Hurricane Katrina. Billed electricity usage decreased a total of 1,343 GWh compared to 2004.
The net gas revenue variance is due to a decrease in gas usage in the service territory caused by Hurricane Katrina.
The net wholesale variance is due to an increase in volume as a result of increased generation resulting in more energy available for resale sales in early 2005.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues decreased primarily due to the net revenue items mentioned above.
Fuel and purchased power expenses decreased primarily due to a decrease in electricity generated and power purchased as a result of Hurricane Katrina, partially offset by an increase in the market prices of purchased power and natural gas.
Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits decreased primarily due to the deferral in 2004 of voluntary severance plan and fossil plant maintenance expenses in accordance with a stipulation approved by the City Council in August 2004. The stipulation allows for the recovery of these costs through amortization of a regulatory asset. The voluntary severance plan and fossil plant maintenance expenses are being amortized over a five-year period that became effective January 2004 and January 2003, respectively.
2004 Compared to 2003
Net revenue, which is Entergy New Orleans' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2004 to 2003.
Amount |
||
(In Millions) |
||
2003 net revenue |
$208.3 |
|
Base rates |
10.6 |
|
Volume/weather |
8.3 |
|
2004 deferrals |
7.5 |
|
Price applied to unbilled electric sales |
3.7 |
|
Other |
0.6 |
|
2004 net revenue |
$239.0 |
The increase in base rates was effective June 2003. The rate increase is discussed in Note 2 to the domestic utility companies and System Energy financial statements.
The volume/weather variance is primarily due to increased billed electric usage of 162 GWh in the industrial service sector. The increase was partially offset by milder weather in the residential and commercial sectors.
The 2004 deferrals variance is due to a stipulation approved by the City Council in August 2004, discussed above.
The price applied to unbilled electric sales variance is due to an increase in the fuel price applied to unbilled sales. See "Critical Accounting Estimates" below and Note 1 to the domestic utility companies and System Energy financial statements for further discussion of the accounting for unbilled revenues.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase in gross wholesale revenue as a result of an increase of $32.4 million in sales to affiliates and an increase of $28.7 million in fuel revenues due to higher fuel rates, in addition to the net revenue items mentioned above.
Fuel and purchased power expenses increased primarily due to an increase in electricity generated and power purchased coupled with an increase in the market prices of natural gas and purchased power.
Other regulatory credits have no material effect on net income due to recovery of such expenses. Other regulatory credits increased primarily due to a stipulation approved by the City Council in August 2004, as discussed above.
Other Income Statement Variances
2005 Compared to 2004
Other operation and maintenance expenses decreased primarily due to the following:
Depreciation and amortization expenses increased due to an adjustment in 2005 in the estimated salvage values included in the depreciation calculation of certain depreciable assets.
Other income decreased primarily due to a decrease in the investment in the customer service system in accordance with a formula rate plan settlement partially offset by an increase in the allowance for equity funds used during construction as a result of an increase in construction work in progress due to Hurricane Katrina.
Interest on long-term debt decreased primarily due to the cessation of interest accruals as a result of the bankruptcy filing in addition to lower interest recorded prior to the bankruptcy filing as a result of the refinancing of long-term debt in 2004.
2004 Compared to 2003
Other operation and maintenance expenses decreased slightly primarily due to the $4.7 million voluntary severance program accruals in 2003. The decrease was offset by increases in customer service support costs and maintenance and outage costs at fossil plants.
The increase in miscellaneous income is primarily due to an asbestos insurance settlement in April 2004.
Interest on long-term debt decreased primarily due to long-term debt refinancing in the third quarter of 2003.
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 58.9%, 37.5%, and 42.8%, respectively. See Note 3 to the domestic utility companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35% to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Preferred Dividends
As a result of Entergy New Orleans' bankruptcy filing, no preferred dividends were declared during the third and fourth quarters of 2005.
Entergy New Orleans has 77,798 shares of $100 par value, 4-3/4% series preferred stock ("4-3/4% Preferred") issued and outstanding. The 4-3/4% Preferred is non-voting, limited and preferred as to dividends, has a preference in liquidation over the common stock equal to its par value ($100), has redemption rights equal to 105% of its issue price and is not convertible into any other class of stock. The 4-3/4% Preferred is entitled to a quarterly dividend to be paid on the first day of January, April, July, and October. Due to its bankruptcy, Entergy New Orleans did not pay the preferred stock dividends due October 1, 2005 or January 1, 2006. If dividends with respect to the 4-3/4% Preferred are not paid by July 1, 2006, the holders of these shares will have the right to elect a majority of the Entergy New Orleans board of directors. If the 4-3/4% Preferred obtain the right to elect a majority of the Entergy New Orleans board of directors, Entergy New Orlea ns will no longer be a member of the Entergy Consolidated Tax Return Group. If Entergy New Orleans is not a member of the Entergy Consolidated Tax Return Group, Entergy New Orleans is not entitled to benefits under the Entergy Income Tax Allocation Agreement.
Liquidity and Capital Resources
Debtor-in-Possession Credit Agreement
On September 26, 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility to provide funding to Entergy New Orleans during its business restoration efforts. On December 9, 2005, the bankruptcy court issued its final order approving the DIP Credit Agreement. The indenture trustee of Entergy New Orleans' first mortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee filing its notice of appeal, Entergy New Orleans, Entergy Corporation, and the indenture trustee filed with the bankruptcy court a motion to approve a settlement among the parties. The settlement would result in the dismissal of the indenture trustee's appeal. The settlement is set for hearing in the bankruptcy court on March 22, 2006.
The credit facility provides for up to $200 million in loans. These funds were requested to enable Entergy New Orleans to meet its liquidity needs, including employee wages and benefits and payments under power purchase and gas supply agreements, and to continue its efforts to repair and restore the facilities needed to serve its electric and gas customers. The facility provides the ability for Entergy New Orleans to request funding from Entergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. As of December 31, 2005, Entergy New Orleans had $90 million of outstanding borrowings under the DIP credit agreement. Management currently expects the bankruptcy court-authorized funding level to be sufficient to fund Entergy New Orleans' expected level of operations through 2006.
Borrowings under the DIP credit agreement are due in full, and the agreement will terminate, at the earliest of (i) August 23, 2006, or such later date as Entergy Corporation shall agree to in its sole discretion, (ii) the acceleration of the loans and the termination of the DIP credit agreement in accordance with its terms, (iii) the date of the closing of a sale of all or substantially all of Entergy New Orleans' assets pursuant to section 363 of the United States Bankruptcy Code or a confirmed plan of reorganization, or (iv) the effective date of a plan of reorganization in Entergy New Orleans' bankruptcy case.
As security for Entergy Corporation as the lender, the terms of the December 9, 2005 bankruptcy court order provide that all borrowings by Entergy New Orleans under the DIP Credit Agreement are: (i) entitled to superpriority administrative claim status pursuant to section 364(c)(1) of the Bankruptcy Code; (ii) secured by a perfected first priority lien on all property of Entergy New Orleans pursuant to sections 364(c)(2) and 364(d) of the Bankruptcy Code, except on any property of Entergy New Orleans subject to valid, perfected, and non-avoidable liens of the lender on Entergy New Orleans' $15 million credit facility; and (iii) secured by a perfected junior lien pursuant to section 364(c)(3) of the Bankruptcy Code on all property of Entergy New Orleans subject to valid, perfected, and non-avoidable liens in favor of the lender on Entergy New Orleans' $15 million credit facility that existed as of the date Entergy New Orleans filed its bankruptcy petition.
The lien granted by the bankruptcy court under sections 364(c)(2) and 364(d) primes the liens that secure Entergy New Orleans' obligations under its mortgage bond indenture that existed as of the date Entergy New Orleans filed its bankruptcy petition. To secure Entergy New Orleans' obligations under its mortgage bond indenture, the bankruptcy court's December 9, 2005 order grants in favor of the bond trustee, for the benefit of itself and the bondholders, a lien on all Entergy New Orleans property that secures its obligations under the DIP Credit Agreement. The lien in favor of the bond trustee is senior to all other liens except for the liens in favor of the lender on Entergy New Orleans' $15 million credit facility and Entergy Corporation.
The interest rate on borrowings under the DIP credit agreement will be the average interest rate of borrowings outstanding under Entergy Corporation's $2 billion revolving credit facility, which was approximately 4.7% per annum at December 31, 2005.
Events of default under the DIP credit agreement include: failure to make payment of any installment of principal or interest when due and payable; the occurrence of a change of control of Entergy New Orleans; failure by either Entergy New Orleans or Entergy Corporation to receive other necessary governmental approvals and consents; the occurrence of an event having a materially adverse effect on Entergy New Orleans or its prospects; and customary bankruptcy-related defaults, including, without limitation, appointment of a trustee, "responsible person," or examiner with expanded powers, conversion of Entergy New Orleans' chapter 11 case to a case under chapter 7 of the Bankruptcy Code, and the interim or final orders approving the DIP Credit Agreement being stayed or modified or ceasing to be in full force and effect.
Cash Flow
Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Thousands) |
|||||||
Cash and cash equivalents at beginning of period |
$7,954 |
$4,669 |
$66,247 |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
(41,152) |
63,207 |
5,477 |
||||
Investing activities |
(52,998) |
(48,910) |
(63,089) |
||||
Financing activities |
134,252 |
(11,012) |
(3,966) |
||||
Net increase (decrease) in cash and cash equivalents |
40,102 |
3,285 |
(61,578) |
||||
Cash and cash equivalents at end of period |
$48,056 |
$7,954 |
$4,669 |
Operating Activities
Entergy New Orleans operating activities used $41.2 million in 2005 compared to providing $63.2 million in 2004 primarily due to the effects of Hurricane Katrina including lower net income, storm restoration spending, decreased recovery of deferred fuel costs, and decreased collection of receivables in addition to a pension fund contribution of $12 million made in April 2005, partially offset by an increase of $12.3 million in income tax refunds in 2005.
Cash flow from operations increased $57.7 million in 2004 primarily due to increased net income and the timing of collections of receivables.
In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy
's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi realized $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million, Entergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy New Orleans' share is $27 million, and System Energy's share is $62 million.& nbsp; In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.Investing Activities
Net cash used in investing activities increased $4.1 million in 2005 primarily due to increased capital expenditures related to distribution projects as a result of Hurricane Katrina. Capital expenditures made during 2005 as a result of Hurricane Katrina were $26.5 million.
Net cash used in investing activities decreased $14.2 million in 2004 primarily due to capital expenditures related to a turbine inspection project at a fossil plant in 2003 and decreased customer service spending.
Financing Activities
Financing activities provided $134.3 million of cash in 2005 compared to using $11.0 million of cash in 2004 due to the borrowing of $90 million under the DIP credit agreement in addition to money pool activity and a $15 million borrowing under a 364-day credit facility.
Net cash used in financing activities increased $7.0 million in 2004 primarily due to the costs and expenses related to refinancing $75 million of long-term debt in 2004 and an increase of $2.2 million in common stock dividends paid.
In July 2003, Entergy New Orleans issued $30 million of 3.875% Series First Mortgage Bonds due August 2008 and $70 million of 5.25% Series First Mortgage Bonds due August 2013. The proceeds from these issuances were used to redeem, prior to maturity, $30 million of 7% Series First Mortgage Bonds due July 2008, $40 million of 8% Series bonds due March 2006, and $30 million of 6.65% Series First Mortgage Bonds due March 2004. The issuances and redemptions are not shown on the cash flow statement because the proceeds from the issuances were placed in a trust for use in the redemptions and never held as cash by Entergy New Orleans.
See Note 5 to the domestic utility companies and System Energy financial statements for details on long-term debt.
Capital Structure
Entergy New Orleans' capitalization is shown in the following table. The increase in the debt to capital percentage as of December 31, 2005 is primarily the result of increased debt outstanding due to additional borrowings on the DIP credit facility and 364-day credit facility.
|
|
December 31, |
|
December 31, |
|
|
|
|
|
Net debt to net capital |
|
62.8% |
|
56.0% |
Effect of subtracting cash from debt |
|
3.6% |
|
0.9% |
Debt to capital |
|
66.4% |
|
56.9% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, the DIP credit facility, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy New Orleans uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy New Orleans' financial condition.
Uses of Capital
Entergy New Orleans requires capital resources for:
Following are the amounts of Entergy New Orleans' planned construction and other capital investments and existing debt obligations:
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
After 2010 |
|
Total |
|
(In Millions) |
||||||||
Planned construction and |
|
|
|
|
|
|
|
|
|
capital investment (1) |
$21 |
|
$72 |
|
N/A |
|
N/A |
|
$93 |
Long-term debt |
$- |
|
$30 |
|
$30 |
|
$170 |
|
$230 |
Operating leases |
$2 |
|
$2 |
|
$1 |
|
$- |
|
$5 |
Purchase obligations (2) |
$209 |
|
$337 |
|
$284 |
|
$1,217 |
|
$2,047 |
(1) |
Consists almost entirely of maintenance capital, which is planned spending on routine capital projects that are necessary to support reliability of service, equipment or systems and to support normal customer growth. |
(2) |
Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy New Orleans, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the domestic utility companies and System Energy financial statements. |
In addition to the planned spending in the table above, Entergy New Orleans also expects to make $46 million of payments in 2006 related to Hurricane Katrina restoration work.
The planned capital investment estimate for Entergy New Orleans reflects capital required to support existing business. The estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints, environmental compliance, market volatility, economic trends, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 and to the domestic utility companies and System Energy financial statements.
At the September 27, 2005 City Council meeting, the City Council adopted a number of emergency measures proposed by Entergy New Orleans to address the effects of Hurricane Katrina on Entergy New Orleans' operations and load. These included the approval of the temporary sale by Entergy New Orleans of the output related to certain purchased power agreements to Entergy Gulf States and Entergy Louisiana, as well as the temporary sale into the wholesale market of Entergy New Orleans' share of the output of Grand Gulf. The City Council also granted Entergy New Orleans' request to suspend temporarily the generation performance-based recovery plan effective with the September 2005 operations month. In addition, the City Council authorized Entergy New Orleans to unwind certain financial gas hedging transactions that had been executed for the 2005-2006 winter heating season to reflect Entergy New Orleans' reduced gas resale customer load as a consequence of Hurricane Katrina. The proceeds of the unwinding, or early settlement, of these gas hedging transactions were used for storm restoration efforts and accounted for as credits to various resale gas customer obligations owed to Entergy New Orleans.
Sources of Capital
Entergy New Orleans' sources to meet its capital requirements include:
Entergy New Orleans issued $30 million of First Mortgage Bond in 2005 as follows:
Issue Date |
|
Description |
|
Maturity |
|
Amount |
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
June 2005 |
|
4.98% Series |
|
July 2010 |
|
$30,000 |
Proceeds from the issuance in June 2005 were used to retire the following First Mortgage Bond:
Retirement Date |
|
Description |
|
Maturity |
|
Amount |
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
|
|
|
July 2005 |
|
8.125% Series |
|
July 2005 |
|
$30,000 |
In July 2005, Entergy Louisiana and Entergy New Orleans renewed their 364-day credit facilities with the same lender through May 2006. Entergy New Orleans increased the amount of its credit facility to $15 million, the same amount as Entergy Louisiana's facility. The combined amount of outstanding borrowings on the two facilities by the two companies cannot exceed $15 million. Entergy New Orleans has outstanding borrowings on this credit facility of $15 million at December 31, 2005. Entergy New Orleans granted the lender a security interest in its customer accounts receivables to secure its borrowings under this facility. Currently the lender has put a hold on a bank account in which Entergy New Orleans has $15 million deposited.
Entergy New Orleans' receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years:
2005 |
|
2004 |
|
2003 |
|
2002 |
(In Thousands) |
||||||
|
|
|
|
|
|
|
($35,558) |
|
$1,413 |
|
$1,783 |
|
$3,500 |
See Note 4 to the domestic utility companies and System Energy financial statements for a description of the money pool. Entergy New Orleans remains a participant in the money pool, but Entergy New Orleans has not made, and does not expect to make, any additional borrowings from the pool while it is in bankruptcy proceedings. The money pool borrowings as of December 31, 2005 are classified as a pre-petition obligation subject to compromise on Entergy New Orleans' balance sheet.
Significant Factors and Known Trends
State and Local Rate Regulation
The rates that Entergy New Orleans charges for electricity and natural gas significantly influence its financial position, results of operations, and liquidity. Entergy New Orleans is closely regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the City Council, is primarily responsible for approval of the rates charged to customers.
In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings showed that a decrease of $0.2 million in electric revenues was warranted and an increase of $3.9 million in gas revenues was warranted. In addition, in May 2005, Entergy New Orleans filed with the City Council a request for continuation of the formula rate plan and generation performance-based rate plan (G-PBR) for an additional three years. In August 2005, Entergy New Orleans, the City Council advisors, and the intervenors entered into an agreement in principle which provided, among other things, for a reduction in Entergy New Orleans' electric base rates of $2.5 million and no change in Entergy New Orleans' gas base rates. The agreement provided for the continuation of the electric and gas formula rate plans for two more annual cycles, effective September 1, 2005, with a target equity ratio of 45% as well as a mid-point return on equi ty of 10.75%. The ROE band-width is 100 basis points from the mid-point for electric operations. The ROE band-width is zero basis points for the 2005 evaluation period and 50 basis points from the mid-point for gas operations. The agreement in principle also includes the continuation and modification of the G-PBR by separating the operation of the G-PBR from the formula rate plan so that the core business' electric rates are not set on a prospective basis by reference to G-PBR earnings. The agreement in principle provides for a $4.5 million cap on Entergy New Orleans' share of G-PBR savings. The G-PBR plan, however, has been temporarily suspended due to impacts from Hurricane Katrina. Entergy New Orleans will notify the City Council's advisors and the City Council at such time as it is reasonable to resume the operation of the G-PBR. In September 2005, the City Council approved the agreement in principle effective as of September 1, 2005.
In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plaintiffs also seek to recover interest and attorneys' fees. Entergy filed exceptions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over these issues rests with the City Council and FERC. In March 2004, the plaintiffs supplemented and amended their petition. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. The suit in state court has been stayed by stipulation of the parties pending review of the decision by the City Council in the proceeding discussed in the next paragraph.
Plaintiffs also filed a corresponding complaint with the City Council in order to initiate a review by the City Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed on behalf of the plaintiffs in this proceeding asserting, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in Entergy New Orleans customers being overcharged by more than $100 million over a period of years. Hearings were held in February and March 2002. In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an all egation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs appealed the City Council resolution to the state courts. On May 26, 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiff's claim that the refund amount should be higher. In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal. Subsequent to Entergy New Orleans' filing of a bankruptcy petition in the Eas tern District of Louisiana, Entergy New Orleans filed a Notice of Stay with the Court of Appeal. The plaintiffs have filed a motion with the Bankruptcy Court requesting that the stay be lifted. The briefing schedule in the Court of Appeal has been continued.
In addition to rate proceedings, Entergy New Orleans' fuel costs recovered from customers are subject to regulatory scrutiny.
Entergy New Orleans' retail and wholesale rate matters and proceedings, including fuel cost recovery- related issues, are discussed more thoroughly in Note 2 to the domestic utility companies and System Energy financial statements.
Federal Regulation
System Agreement Proceedings
See "System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for discussion of the proceeding at FERC involving the System Agreement and of other related proceedings.
Transmission
See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Available Flowgate Capacity Proceeding
See "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion.
Energy Policy Act of 2005
See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Market and Credit Risks
Entergy New Orleans has certain market and credit risks inherent in its business. Market risks represent the risk of changes in the value of commodity and financial instruments, or in future operating results or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement.
Environmental Risks
Entergy New Orleans' facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous solid wastes, and other environmental matters. Management believes that Entergy New Orleans is in substantial compliance with environmental regulations currently applicable to its facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Litigation Risks
The territory in which Entergy New Orleans operates has proven to be an unusually litigious environment. Judges and juries in New Orleans have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. Entergy New Orleans uses legal and appropriate means to contest litigation threatened or filed against it, but the litigation environment poses a significant business risk.
Critical Accounting Estimates
The preparation of Entergy New Orleans' financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements could produce estimates that would have a material impact on the presentation of Entergy New Orleans' financial position or results of operations.
Unbilled Revenue
As discussed in Note 1 to the domestic utility companies and System Energy financial statements, Entergy New Orleans records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month, including fuel price. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period and fuel price fluctuations, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estima te of unbilled customer usage, and assumptions regarding price such as the fuel cost recovery mechanism.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed income securities, and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in both 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
Impact on 2005 |
|
Impact on Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$266 |
|
$3,120 |
Rate of return on plan assets |
|
(0.25%) |
|
$100 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$127 |
|
$799 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
|
0.25% |
|
$169 |
|
$1,097 |
Discount rate |
|
(0.25%) |
|
$77 |
|
$1,404 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 has had and may continue to have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
Total qualified pension cost for Entergy New Orleans in 2005 was $5.3 million. Entergy New Orleans anticipates 2006 qualified pension cost to be $5.9 million. Entergy New Orleans contributed $14.4 million to its qualified pension plans in 2005. No contributions are planned for 2006.
Entergy New Orleans' qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, Entergy New Orleans was required to recognize an additional minimum liability as prescribed by SFAS 87. At December 31, 2005 Entergy New Orleans increased its additional minimum liability for its qualified pension plans to $24.3 million from $16.9 million at December 31, 2004. Entergy New Orleans decreased its intangible asset for the unrecognized prior service cost to $1 million at December 31, 2005 from $1.7 million at December 31, 2004. Entergy New Orleans increased the regulatory asset to $23.3 million at December 31, 2005 from $15.2 million at December 31, 2004. Net income for 2005, 2004, and 2003 was not impacted.
Total postretirement health care and life insurance benefit costs for Entergy New Orleans in 2005 were $4.5 million, including $1.3 million in savings due to the estimated effect of future Medicare Part D subsidies. Entergy New Orleans expects 2006 postretirement health care and life insurance benefit costs to approximate $5 million, including $1.5 million in savings due to the estimated effect of future Medicare Part D subsidies.
New Accounting Pronouncements
In December 2005, Entergy New Orleans implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy New Orleans' obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. The net effect of implementing FIN 47 for Entergy New Orleans was recorded as a regulatory asset, with no resulting effect on Entergy New Orleans' net income. Entergy New Orleans recorded this regulatory asset because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future customers. Upon implementation of FIN 47 in December 2005, assets and liabilities increased by $2.4 million as a result of recording the asset retirement obligation at its fair value as determined under FIN 47, increasing utility plant by $0.1 million, increasing accumulated depreciation by $0.1 million, and recording the related regulatory asset of $2.4 million.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy New Orleans, Inc.:
We have audited the accompanying balance sheets of Entergy New Orleans, Inc. (Debtor-in-Possession) (the "Company") as of December 31, 2005 and 2004, and the related statements of income, retained earnings, and cash flows (pages 280 through 284 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Entergy New Orleans, Inc. (Debtor-in-Possession) as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 14 to the respective financial statements, the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to shareholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations the effect of any changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As further discussed in Note 14 to the respective financial statements, the Company's filing for reorganization under Chapter 11 raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | ||||||
INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $536,016 | $588,457 | $527,660 | |||
Natural gas | 137,310 | 147,411 | 126,356 | |||
TOTAL | 673,326 | 735,868 | 654,016 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 217,365 | 245,301 | 214,735 | |||
Purchased power | 273,576 | 256,190 | 231,787 | |||
Other operation and maintenance | 89,130 | 107,874 | 108,217 | |||
Taxes other than income taxes | 41,538 | 43,577 | 42,198 | |||
Depreciation and amortization | 33,975 | 29,657 | 30,004 | |||
Reorganization items | 1,489 | - - | - - | |||
Other regulatory charges (credits) - net | 3,181 | (4,670) | (843) | |||
TOTAL | 660,254 | 677,929 | 626,098 | |||
OPERATING INCOME | 13,072 | 57,939 | 27,918 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 3,229 | 1,378 | 2,085 | |||
Interest and dividend income | 1,795 | 720 | 825 | |||
Miscellaneous - net | (4,110) | 270 | (1,453) | |||
TOTAL | 914 | 2,368 | 1,457 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 10,153 | 15,357 | 17,436 | |||
Other interest - net | 3,402 | 1,253 | 350 | |||
Allowance for borrowed funds used during construction | (2,609) | (1,243) | (2,145) | |||
TOTAL | 10,946 | 15,367 | 15,641 | |||
INCOME BEFORE INCOME TAXES | 3,040 | 44,940 | 13,734 | |||
Income taxes | 1,790 | 16,868 | 5,875 | |||
NET INCOME | 1,250 | 28,072 | 7,859 | |||
Preferred dividend requirements and other | 482 | 965 | 965 | |||
EARNINGS APPLICABLE TO | ||||||
COMMON STOCK | $768 | $27,107 | $6,894 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | ||||||
STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $1,250 | $28,072 | $7,859 | |||
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: |
||||||
Other regulatory charges (credits) - net | 3,181 | (4,670) | (843) | |||
Depreciation and amortization | 33,975 | 29,657 | 30,004 | |||
Deferred income taxes and investment tax credits | 156,154 | 39,782 | 15,401 | |||
Changes in working capital: | ||||||
Receivables | (17,902) | 8,792 | (43,025) | |||
Fuel inventory | (3,867) | 1,399 | (2,296) | |||
Accounts payable | 36,897 | (3,014) | 17,817 | |||
Taxes accrued | (72,073) | (13,056) | 1,372 | |||
Interest accrued | (2,089) | (1,455) | (276) | |||
Deferred fuel costs | (28,034) | (5,279) | (12,162) | |||
Other working capital accounts | (6,568) | 2,121 | (7,553) | |||
Provision for estimated losses and reserves | (1,632) | (1,305) | (1,634) | |||
Changes in pension liability | (1,151) | 6,260 | 11,986 | |||
Changes in other regulatory assets | (59,707) | (5,380) | (9,473) | |||
Other | (79,586) | (18,717) | (1,700) | |||
Net cash flow provided by (used in) operating activities | (41,152) | 63,207 | 5,477 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (57,640) | (51,264) | (66,285) | |||
Allowance for equity funds used during construction | 3,229 | 1,378 | 2,085 | |||
Change in money pool receivable - net | 1,413 | 370 | 1,717 | |||
Changes in other temporary investments - net | - | 606 | (606) | |||
Net cash flow used in investing activities | (52,998) | (48,910) | (63,089) | |||
FINANCING ACTIVITIES | ||||||
Borrowings on DIP credit facility | 90,000 | - - | - - | |||
Proceeds from the issuance of long-term debt | 29,783 | 72,640 | - - | |||
Retirement of long-term debt | (30,065) | (77,487) | - - | |||
Change in money pool payable - net | 35,558 | - - | - - | |||
Changes in short-term borrowings | 15,000 | - - | - - | |||
Dividends paid: | ||||||
Common stock | (5,300) | (5,200) | (3,001) | |||
Preferred stock | (724) | (965) | (965) | |||
Net cash flow provided by (used in) financing activities | 134,252 | (11,012) | (3,966) | |||
Net increase (decrease) in cash and cash equivalents | 40,102 | 3,285 | (61,578) | |||
Cash and cash equivalents at beginning of period | 7,954 | 4,669 | 66,247 | |||
Cash and cash equivalents at end of period | $48,056 | $7,954 | $4,669 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $20,066 | $16,172 | $17,427 | |||
Income taxes | ($18,000) | ($5,736) | ($13,530) | |||
See Notes to Respective Financial Statements. |
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $48,056 | $2,998 | ||
Temporary cash investments - at cost, | ||||
which approximates market | - - | 4,956 | ||
Total cash and cash equivalents | 48,056 | 7,954 | ||
Accounts receivable: | ||||
Customer | 82,052 | 47,356 | ||
Allowance for doubtful accounts | (25,422) | (3,492) | ||
Associated companies | 17,895 | 12,223 | ||
Other | 6,530 | 7,329 | ||
Accrued unbilled revenues | 23,698 | 24,848 | ||
Total accounts receivable | 104,753 | 88,264 | ||
Deferred fuel | 30,593 | 2,559 | ||
Fuel inventory - at average cost | 8,048 | 4,181 | ||
Materials and supplies - at average cost | 8,961 | 9,150 | ||
Prepayments and other | 61,581 | 3,467 | ||
TOTAL | 261,992 | 115,575 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 3,259 | 3,259 | ||
Non-utility property at cost (less accumulated depreciation) | 1,107 | - - | ||
4,366 | 3,259 | |||
UTILITY PLANT | ||||
Electric | 691,045 | 699,072 | ||
Natural gas | 189,207 | 183,728 | ||
Construction work in progress | 202,353 | 33,273 | ||
TOTAL UTILITY PLANT | 1,082,605 | 916,073 | ||
Less - accumulated depreciation and amortization | 428,053 | 435,519 | ||
UTILITY PLANT - NET | 654,552 | 480,554 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
Other regulatory assets | 166,133 | 40,354 | ||
Long term receivables | 1,812 | 2,492 | ||
Other | 31,266 | 20,540 | ||
TOTAL | 199,211 | 63,386 | ||
TOTAL ASSETS | $1,120,121 | $662,774 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
December 31, | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $ - | $30,000 | ||
DIP credit facility | 90,000 | - - | ||
Notes payable | 15,000 | - - | ||
Accounts payable: | ||||
Associated companies | 55,923 | 30,563 | ||
Other | 228,496 | 44,149 | ||
Customer deposits | 16,930 | 17,187 | ||
Taxes accrued | - - | 2,592 | ||
Accumulated deferred income taxes | 1,898 | 1,906 | ||
Interest accrued | 1,195 | 4,757 | ||
Energy Efficiency Program provision | - - | 6,611 | ||
Other | 2,018 | 3,477 | ||
TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 411,460 | 141,242 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 127,680 | 47,062 | ||
Accumulated deferred investment tax credits | 3,570 | 3,997 | ||
SFAS 109 regulatory liability - net | 52,229 | 46,406 | ||
Other regulatory liabilities | 591 | - - | ||
Retirement cost liability | 2,421 | - - | ||
Accumulated provisions | 2,119 | 9,323 | ||
Pension liability | 35,694 | 36,845 | ||
Long-term debt | - - | 199,902 | ||
Other | 5,730 | 3,755 | ||
TOTAL NON-CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 230,034 | 347,290 | ||
LIABILITIES SUBJECT TO COMPROMISE | 308,917 | - - | ||
TOTAL LIABILITIES | 950,411 | 488,532 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 19,780 | 19,780 | ||
Common stock, $4 par value, authorized 10,000,000 | ||||
shares; issued and outstanding 8,435,900 shares in 2005 | ||||
and 2004 | 33,744 | 33,744 | ||
Paid-in capital | 36,294 | 36,294 | ||
Retained earnings | 79,892 | 84,424 | ||
TOTAL | 169,710 | 174,242 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $1,120,121 | $662,774 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | ||||||
STATEMENTS OF RETAINED EARNINGS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
Retained Earnings, January 1 | $84,424 | $62,517 | $58,624 | |||
Add: | ||||||
Net income | 1,250 | 28,072 | 7,859 | |||
Deduct: | ||||||
Dividends declared: | ||||||
Preferred stock | 482 | 965 | 965 | |||
Common stock | 5,300 | 5,200 | 3,001 | |||
Total | 5,782 | 6,165 | 3,966 | |||
Retained Earnings, December 31 | $79,892 | $84,424 | $62,517 | |||
See Notes to Respective Financial Statements. | ||||||
ENTERGY NEW ORLEANS, INC. | ||||||||||
(DEBTOR-IN-POSSESSION) | ||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(In Thousands) | ||||||||||
Operating revenues | $673,326 | $735,868 | $654,016 | $507,874 | $630,850 | |||||
Net Income (loss) | $1,250 | $28,072 | $7,859 | ($230) | ($2,195) | |||||
Total assets | $1,120,121 | $662,774 | $629,627 | $584,705 | $566,037 | |||||
Long-term obligations (1) | $229,859 | $199,902 | $229,217 | $229,191 | $299,097 | |||||
(1) Includes long-term debt (excluding currently maturing debt). As a result of Entergy New Orleans' bankruptcy filing, long-term obligations are classified as pre-petion liablities subject to compromise on the Balance Sheet as of December 31, 2005. | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Millions) | ||||||||||
Electric Operating Revenues: | ||||||||||
Residential | $150 | $184 | $178 | $170 | $190 | |||||
Commercial | 145 | 171 | 162 | 154 | 186 | |||||
Industrial | 32 | 34 | 27 | 25 | 32 | |||||
Governmental | 59 | 70 | 68 | 66 | 81 | |||||
Total retail | 386 | 459 | 435 | 415 | 489 | |||||
Sales for resale: | ||||||||||
Associated companies | 117 | 118 | 85 | 7 | 10 | |||||
Non-associated companies | 21 | 2 | 2 | 2 | 3 | |||||
Other | 12 | 9 | 6 | 1 | 1 | |||||
Total | $536 | $588 | $528 | $425 | $503 | |||||
Billed Electric Energy Sales (GWh): | ||||||||||
Residential | 1,616 | 2,139 | 2,133 | 2,158 | 1,981 | |||||
Commercial | 1,798 | 2,316 | 2,262 | 2,255 | 2,185 | |||||
Industrial | 498 | 575 | 413 | 409 | 414 | |||||
Governmental | 800 | 1,025 | 1,036 | 1,053 | 1,017 | |||||
Total retail | 4,712 | 6,055 | 5,844 | 5,875 | 5,597 | |||||
Sales for resale: | ||||||||||
Associated companies | 1,705 | 1,514 | 1,312 | 144 | 115 | |||||
Non-associated companies | 336 | 25 | 28 | 32 | 59 | |||||
Total | 6,753 | 7,594 | 7,184 | 6,051 | 5,771 | |||||
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
System Energy's principal asset consists of a 90% ownership and leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy's operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues.
Results of Operations
Net Income
2005 Compared to 2004
Net income increased $5.7 million primarily due to higher interest income earned on temporary cash and money pool investments.
2004 Compared to 2003
Net income remained relatively unchanged, decreasing $0.06 million in 2004.
Income Taxes
The effective income tax rates for 2005, 2004, and 2003 were 38.3%, 42.4%, and 41.7%, respectively. See Note 3 to the domestic utility companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Liquidity and Capital Resources
Cash Flow
Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:
2005 |
2004 |
2003 |
|||||
(In Thousands) |
|||||||
Cash and cash equivalents at beginning of period |
$216,355 |
$52,536 |
$113,159 |
||||
Cash flow provided by (used in): |
|||||||
Operating activities |
274,239 |
375,456 |
112,865 |
||||
Investing activities |
(273,500) |
(87,581) |
(57,113) |
||||
Financing activities |
(141,390) |
(124,056) |
(116,375) |
||||
Net increase (decrease) in cash and cash equivalents |
(140,651) |
163,819 |
(60,623) |
||||
Cash and cash equivalents at end of period |
$75,704 |
$216,355 |
$52,536 |
Operating Activities
Cash flow from operations decreased by $101.2 million in 2005 primarily due to income tax payments of $29.9 million in 2005 compared to income tax refunds of $70.6 million in 2004.
Cash flow from operations increased by $262.6 million in 2004 primarily due to income tax refunds of $70.6 million in 2004 compared to income tax payments of $230.9 million in 2003.
In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi realize d $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million, Entergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy New Orleans' share is $27 million, and System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net oper ating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.
Investing Activities
The increase of $185.9 million in net cash used in investing activities in 2005 was primarily due to money pool activity. Also contributing to the increase was an increase of $5.2 million in construction expenditures primarily resulting from capital spending on dry fuel storage partially offset by the reclassification of inventory items to capital in 2004.
Net cash used for investing activities increased by $30.5 million primarily due to money pool activity and an increase in construction expenditures caused by a reclassification of inventory items to capital, partially offset by the maturity of $6.5 million of other temporary investments that had been made in 2003, which provided cash in 2004.
Financing Activities
The increase of $17.3 million in net cash used in financing activities in 2005 was primarily due to an increase of $22.4 million in the January 2005 principal payment made on the Grand Gulf sale-leaseback compared to the January 2004 principal payment and an increase of $8 million in common stock dividends paid. The increase was partially offset by the retirement of $7.6 million of long-term debt in 2004 and $5.5 million in costs related to System Energy refunding bonds associated with its Grand Gulf Lease Obligation in May 2004.
The increase of $7.7 million in net cash used in financing activities in 2004 was primarily due to $5.5 million in costs related to System Energy refunding bonds associated with its Grand Gulf Lease Obligation in May 2004 and the retirement of $7.6 million of long-term debt 2004. The increase was partially offset by a decrease of $5.0 million in the January 2004 principal payment made on the Grand Gulf sale-leaseback compared to the January 2003 principal payment.
See Note 5 to the domestic utility companies and System Energy financial statements for details of long-term debt.
Capital Structure
System Energy's capitalization is balanced between equity and debt, as shown in the following table.
|
|
December 31, |
|
December 31, |
|
|
|
|
|
Net debt to net capital |
|
49.0% |
|
44.7% |
Effect of subtracting cash from debt |
|
2.1% |
|
6.5% |
Debt to capital |
|
51.1% |
|
51.2% |
Net debt consists of debt less cash and cash equivalents. Debt consists of capital lease obligations and long-term debt, including the currently maturing portion. Capital consists of debt and common shareholders' equity. Net capital consists of capital less cash and cash equivalents. System Energy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy's financial condition.
Uses of Capital
System Energy requires capital resources for:
Following are the amounts of System Energy's planned construction and other capital investments, existing debt and lease obligations, and other purchase obligations:
|
2006 |
|
2007-2008 |
|
2009-2010 |
|
After 2010 |
|
Total |
|
(In Millions) |
||||||||
Planned construction and |
|
|
|
|
|
|
|
|
|
capital investment |
$14 |
|
$66 |
|
N/A |
|
N/A |
|
$80 |
Long-term debt |
$23 |
|
$120 |
|
$70 |
|
$630 |
|
$843 |
$28 |
|
$60 |
|
N/A |
|
N/A |
|
$88 |
(1) |
It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. If such additional financing cannot be arranged, however, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations. |
System Energy expects to contribute $13 million to pension plans and $1.2 million to other postretirement plans in 2006.
The planned capital investment estimate for System Energy reflects capital required to support the existing business of System Energy. Management provides more information on long-term debt in Note 5 to the domestic utility companies and System Energy financial statements.
As a wholly-owned subsidiary, System Energy dividends its earnings to Entergy Corporation at a percentage determined monthly. Currently, all of System Energy's retained earnings are available for distribution.
Sources of Capital
System Energy's sources to meet its capital requirements include:
System Energy had three-year letters of credit in place that were scheduled to expire in March 2003 securing certain of its obligations related to the sale-leaseback of a portion of Grand Gulf. System Energy replaced the letters of credit before their expiration with new three-year letters of credit totaling approximately $198 million that were backed by cash collateral. In December 2003, System Energy replaced the cash-backed letters of credit with syndicated bank letters of credit. In December 2004, System Energy amended these letters of credit and they now expire in May 2009.
System Energy may refinance or redeem debt prior to maturity, to the extent market conditions and interest and dividend rates are favorable.
All debt and common stock issuances by System Energy require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in bond indentures and other agreements. System Energy has sufficient capacity under these tests to meet its foreseeable capital needs.
Prior to February 8, 2006, borrowings and securities issuances by System Energy were limited to amounts authorized by the SEC. Effective with repeal of PUHCA 1935 on that date, the FERC, under the Federal Power Act, has jurisdiction over its securities issuances. System Energy has obtained a short-term borrowing authorization from the FERC under which it may borrow, through March 31, 2008, up to the aggregate amount, at any one time outstanding, of $200 million. See Note 4 to the domestic utility companies and System Energy financial statements for further discussion of System Energy's short-term borrowing limits.
Under a savings provisions in PUHCA 2005 which repealed PUHCA 1935, System Energy can rely, after the repeal, on the long-term securities issuance authority in its SEC PUHCA 1935 orders, unless superceded by FERC authorization.
System Energy's receivables from the money pool were as follows as of December 31 for each of the following years
:
2005 |
|
2004 |
|
2003 |
|
2002 |
(In Thousands) |
||||||
|
|
|
|
|
|
|
$277,287 |
|
$61,592 |
|
$19,064 |
|
$7,046 |
See Note 4 to the domestic utility companies and System Energy financial statements for a description of the money pool.
Significant Factors and Known Trends
Energy Policy Act of 2005
See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Market Risks
Interest Rate and Equity Price Risk - Decommissioning Trust Funds
System Energy's nuclear decommissioning trust funds expose it to fluctuations in equity prices and interest rates. The NRC requires System Energy to maintain trusts to fund the costs of decommissioning Grand Gulf. The funds are invested primarily in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the Grand Gulf trust funds because of the application of regulatory accounting principles. The decommissioning trust funds are discussed more thoroughly in Notes 1, 8, and 12 to the domestic utility companies and System Energy financial statements.
Nuclear Matters
System Energy owns and operates, through an affiliate, Grand Gulf. System Energy is, therefore, subject to the risks related to owning and operating a nuclear plant. These include risks from the use, storage, handling and disposal of high-level and low-level radioactive materials, limitations on the amounts and types of insurance commercially available for losses in connection with nuclear operations, and technological and financial uncertainties related to decommissioning nuclear plants at the end of their licensed lives, including the sufficiency of funds in decommissioning trusts. In the event of an unanticipated early shutdown of Grand Gulf, System Energy may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning.
Litigation Risks
The states in which System Energy's customers operate have proven to be unusually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, including punitive damages, to plaintiffs in personal injury, property damage, and business tort cases. System Energy uses legal and appropriate means to contest litigation threatened or filed against it, but the litigation environment poses a significant business risk.
Environmental Risks
System Energy's facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that System Energy is in substantial compliance with environmental regulations currently applicable to its facilities and operations. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.
Critical Accounting Estimates
The preparation of System Energy's financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements could produce estimates that would have a material impact on the presentation of System Energy's financial position or results of operations.
Nuclear Decommissioning Costs
Regulations require that Grand Gulf be decommissioned after the facility is taken out of service, and funds are collected and deposited in trust funds during the facility's operating life in order to provide for this obligation. System Energy conducts periodic decommissioning cost studies (typically updated every three to five years) to estimate the costs that will be incurred to decommission the facility. See Note 8 to the domestic utility companies and System Energy financial statements for details regarding System Energy's most recent study and the obligations recorded by System Energy related to decommissioning. The following key assumptions have a significant effect on these estimates:
System Energy collects the costs of decommissioning Grand Gulf through rates charged to its customers. The amounts collected through rates, which are based upon decommissioning cost studies, are deposited in decommissioning trust funds. These collections plus earnings on the trust fund investments are estimated to be sufficient to fund the future decommissioning costs.
The obligation recorded by System Energy for decommissioning costs is reported in the line item entitled "Decommissioning." Prior to the implementation of SFAS 143, the amount recorded for this obligation was comprised of collections from customers and earnings on the trust funds.
SFAS 143
System Energy implemented SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. Nuclear decommissioning costs are System Energy's only asset retirement obligations, and the measurement and recording of System Energy's decommissioning obligations outlined above changed significantly with the implementation of SFAS 143. The most significant differences in the measurement of these obligations are outlined below:
The net effect of implementing this standard for System Energy was recorded as a regulatory asset, with no resulting impact on System Energy's net income. System Energy recorded this regulatory asset because its existing rate mechanism is based on a cost standard that allows System Energy to recover all ultimate costs of decommissioning from its customers. Upon implementation, assets and liabilities increased by $138 million in 2003 as a result of recording the asset retirement obligation at its fair value of $292 million as determined under SFAS 143, reversing the previously recorded decommissioning liability of $154 million, increasing utility plant by $82 million, increasing accumulated depreciation by $36 million, and recording the related regulatory asset of $92 million.
In the third quarter of 2005, System Energy recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Grand Gulf. The revised estimate resulted in a $41.4 million reduction in the decommissioning cost liability for Grand Gulf, along with a $39.7 million reduction in utility plant and a $1.7 million reduction in the related regulatory asset.
Qualified Pension and Other Postretirement Benefits
Entergy sponsors qualified defined benefit pension plans which cover substantially all employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all employees who reach retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate.
Assumptions
Key actuarial assumptions utilized in determining these costs include:
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.
In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond.
In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed income securities and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005.
Cost Sensitivity
The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
Impact on 2005 |
|
Impact on Projected |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Discount rate |
|
(0.25%) |
|
$472 |
|
$3,541 |
Rate of return on plan assets |
|
(0.25%) |
|
$163 |
|
- |
Rate of increase in compensation |
|
0.25% |
|
$227 |
|
$1,264 |
The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (dollars in thousands):
|
|
|
|
|
|
Impact on Accumulated |
|
|
Increase/(Decrease) |
||||
|
|
|
|
|
|
|
Health care cost trend |
|
0.25% |
|
$173 |
|
$771 |
Discount rate |
|
(0.25%) |
|
$130 |
|
$909 |
Each fluctuation above assumes that the other components of the calculation are held constant.
Accounting Mechanisms
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees.
Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 may have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87.
Costs and Funding
Total qualified pension cost for System Energy in 2005 was $4.4 million. System Energy anticipates 2006 qualified pension cost to decrease to $4.2 million. System Energy contributed $7.7 million to its qualified pension plans in 2005, and under the current law, projects that 2006 contributions will be $13 million. This projection may change pending passage of pension reform legislation. In January 2006, $6 million was funded. $5 million of the amount funded in January 2006 was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act. The rise in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004.
System Energy's qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, System Energy was required to recognize an additional minimum liability as prescribed by SFAS 87. At December 31, 2005, System Energy increased its additional minimum liability for its qualified pension plans to $12.4 million from $7.7 million at December 31, 2004. System Energy increased its intangible asset to $0.3 million at December 31, 2005 from $0.2 million at December 31, 2004. System Energy increased its regulatory asset to $12 million at December 31, 2005, from $7.4 million at December 31, 2004. Net income for 2005, 2004, and 2003 was not impacted.
Total postretirement health care and life insurance benefit costs for System Energy in 2005 were $1.7 million, including $0.9 million in savings due to the estimated effect of future Medicare Part D subsidies. System Energy expects 2006 postretirement health care and life insurance benefit costs to approximate $1.2 million, including $1.1 million in savings due to the estimated effect of future Medicare Part D subsidies.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder
System Energy Resources, Inc.:
We have audited the accompanying balance sheets of System Energy Resources, Inc. as of December 31, 2005 and 2004, and the related statements of income, retained earnings, and cash flows (pages 296 through 300 and applicable items in pages 302 through 376) for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of System Energy Resources, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 8 to the notes to respective financial statements, in 2003 System Energy Resources, Inc. adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
SYSTEM ENERGY RESOURCES, INC. | ||||||
INCOME STATEMENTS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING REVENUES | ||||||
Domestic electric | $533,929 | $545,381 | $583,820 | |||
OPERATING EXPENSES | ||||||
Operation and Maintenance: | ||||||
Fuel, fuel-related expenses, and | ||||||
gas purchased for resale | 37,660 | 38,337 | 43,132 | |||
Nuclear refueling outage expenses | 12,571 | 12,655 | 12,695 | |||
Other operation and maintenance | 106,377 | 96,809 | 105,333 | |||
Decommissioning | 24,437 | 23,434 | 21,799 | |||
Taxes other than income taxes | 25,239 | 24,364 | 25,521 | |||
Depreciation and amortization | 119,572 | 127,081 | 109,528 | |||
Other regulatory charges (credits) - net | (15,337) | (10,433) | 27,400 | |||
TOTAL | 310,519 | 312,247 | 345,408 | |||
OPERATING INCOME | 223,410 | 233,134 | 238,412 | |||
OTHER INCOME | ||||||
Allowance for equity funds used during construction | 1,625 | 1,544 | 1,140 | |||
Interest and dividend income | 16,279 | 6,870 | 7,556 | |||
Miscellaneous - net | (417) | 841 | (1,194) | |||
TOTAL | 17,487 | 9,255 | 7,502 | |||
INTEREST AND OTHER CHARGES | ||||||
Interest on long-term debt | 60,404 | 58,561 | 62,802 | |||
Other interest - net | 20 | 367 | 1,818 | |||
Allowance for borrowed funds used during construction | (514) | (500) | (554) | |||
TOTAL | 59,910 | 58,428 | 64,066 | |||
INCOME BEFORE INCOME TAXES | 180,987 | 183,961 | 181,848 | |||
Income taxes | 69,343 | 78,013 | 75,845 | |||
NET INCOME | $111,644 | $105,948 | $106,003 | |||
See Notes to Respective Financial Statements. | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
STATEMENTS OF CASH FLOWS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
OPERATING ACTIVITIES | ||||||
Net income | $111,644 | $105,948 | $106,003 | |||
Adjustments to reconcile net income to net cash flow provided by operating activities: |
||||||
Other regulatory charges (credits) - net | (15,337) | (10,433) | 27,400 | |||
Depreciation, amortization, and decommissioning | 144,009 | 150,515 | 131,327 | |||
Deferred income taxes and investment tax credits | (112,541) | (178,535) | (35,207) | |||
Changes in working capital: | ||||||
Receivables | 277 | 1,461 | 4,023 | |||
Accounts payable | (2,161) | (5,324) | (1,232) | |||
Taxes accrued | 153,114 | 328,617 | (123,317) | |||
Interest accrued | 2,111 | 13,375 | (12,904) | |||
Other working capital accounts | (10,159) | 2,763 | 1,463 | |||
Provision for estimated losses and reserves | 21 | (1,404) | 2,914 | |||
Changes in other regulatory assets | 10,566 | 31,453 | 26,307 | |||
Other | (7,305) | (62,980) | (13,912) | |||
Net cash flow provided by operating activities | 274,239 | 375,456 | 112,865 | |||
INVESTING ACTIVITIES | ||||||
Construction expenditures | (37,476) | (32,303) | (18,195) | |||
Allowance for equity funds used during construction | 1,625 | 1,544 | 1,140 | |||
Nuclear fuel purchases | (48,391) | (45,497) | - | |||
Proceeds from sale/leaseback of nuclear fuel | 48,662 | 45,677 | - | |||
Proceeds from nuclear decommissioning trust fund sales | 91,137 | 100,668 | 93,003 | |||
Investment in nuclear decommissioning trust funds | (113,362) | (121,624) | (114,531) | |||
Change in money pool receivable - net | (215,695) | (42,528) | (12,048) | |||
Changes in other temporary investments - net | - | 6,482 | (6,482) | |||
Net cash flow used in investing activities | (273,500) | (87,581) | (57,113) | |||
FINANCING ACTIVITIES | ||||||
Retirement of long-term debt | (28,790) | (13,973) | (11,375) | |||
Other financing activities | - - | (5,483) | - | |||
Dividends paid: | ||||||
Common stock | (112,600) | (104,600) | (105,000) | |||
Net cash flow used in financing activities | (141,390) | (124,056) | (116,375) | |||
Net increase (decrease) in cash and cash equivalents | (140,651) | 163,819 | (60,623) | |||
Cash and cash equivalents at beginning of period | 216,355 | 52,536 | 113,159 | |||
Cash and cash equivalents at end of period | $75,704 | $216,355 | $52,536 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Cash paid/(received) during the period for: | ||||||
Interest - net of amount capitalized | $52,508 | $40,000 | $73,636 | |||
Income taxes | $29,914 | ($70,595) | $230,919 | |||
See Notes to Respective Financial Statements. |
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
December 31, | ||||||
2005 | 2004 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $204 | $399 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 75,500 | 215,956 | ||||
Total cash and cash equivalents | 75,704 | 216,355 | ||||
Accounts receivable: | ||||||
Associated companies | 327,454 | 111,588 | ||||
Other | 3,285 | 3,733 | ||||
Total accounts receivable | 330,739 | 115,321 | ||||
Materials and supplies - at average cost | 55,183 | 53,427 | ||||
Deferred nuclear refueling outage costs | 17,853 | 9,510 | ||||
Prepayments and other | 1,878 | 1,007 | ||||
TOTAL | 481,357 | 395,620 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 236,003 | 205,083 | ||||
UTILITY PLANT | ||||||
Electric | 3,212,596 | 3,232,314 | ||||
Property under capital lease | 467,005 | 469,993 | ||||
Construction work in progress | 47,178 | 28,743 | ||||
Nuclear fuel under capital lease | 87,500 | 65,572 | ||||
TOTAL UTILITY PLANT | 3,814,279 | 3,796,622 | ||||
Less - accumulated depreciation and amortization | 1,889,886 | 1,780,450 | ||||
UTILITY PLANT - NET | 1,924,393 | 2,016,172 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 92,883 | 96,047 | ||||
Other regulatory assets | 292,968 | 296,305 | ||||
Other | 18,435 | 19,578 | ||||
TOTAL | 404,286 | 411,930 | ||||
TOTAL ASSETS | $3,046,039 | $3,028,805 | ||||
See Notes to Respective Financial Statements. | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||
December 31, | ||||||
2005 | 2004 | |||||
(In Thousands) | ||||||
CURRENT LIABILITIES | ||||||
Currently maturing long-term debt | $22,989 | $25,266 | ||||
Accounts payable: | ||||||
Associated companies | - | 3,880 | ||||
Other | 22,770 | 21,051 | ||||
Taxes accrued | 228,168 | 46,468 | ||||
Accumulated deferred income taxes | 6,678 | 3,477 | ||||
Interest accrued | 45,109 | 42,998 | ||||
Obligations under capital leases | 27,716 | 27,716 | ||||
Other | 1,811 | 1,621 | ||||
TOTAL | 355,241 | 172,477 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 267,913 | 421,466 | ||||
Accumulated deferred investment tax credits | 72,136 | 75,612 | ||||
Obligations under capital leases | 63,307 | 37,855 | ||||
Other regulatory liabilities | 224,997 | 210,863 | ||||
Decommissioning | 318,927 | 335,893 | ||||
Accumulated provisions | 2,399 | 2,378 | ||||
Long-term debt | 819,642 | 849,593 | ||||
Other | 27,849 | 28,084 | ||||
TOTAL | 1,797,170 | 1,961,744 | ||||
Commitments and Contingencies | ||||||
SHAREHOLDER'S EQUITY | ||||||
Common stock, no par value, authorized 1,000,000 shares; | ||||||
issued and outstanding 789,350 shares in 2005 and 2004 | 789,350 | 789,350 | ||||
Retained earnings | 104,278 | 105,234 | ||||
TOTAL | 893,628 | 894,584 | ||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $3,046,039 | $3,028,805 | ||||
See Notes to Respective Financial Statements. | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
STATEMENTS OF RETAINED EARNINGS | ||||||
For the Years Ended December 31, | ||||||
2005 | 2004 | 2003 | ||||
(In Thousands) | ||||||
Retained Earnings, January 1 | $105,234 | $103,886 | $102,883 | |||
Add: | ||||||
Net income | 111,644 | 105,948 | 106,003 | |||
Deduct: | ||||||
Dividends declared | 112,600 | 104,600 | 105,000 | |||
Retained Earnings, December 31 | $104,278 | $105,234 | $103,886 | |||
See Notes to Respective Financial Statements. | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||||||
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
(Dollars In Thousands) | ||||||||||
Operating revenues | $533,929 | $545,381 | $583,820 | $602,486 | $535,027 | |||||
Net Income | $111,644 | $105,948 | $106,003 | $103,352 | $116,355 | |||||
Total assets | $3,046,039 | $3,028,805 | $2,880,724 | $2,915,898 | $2,964,041 | |||||
Long-term obligations (1) | $882,949 | $887,448 | $898,377 | $942,701 | $865,439 | |||||
Electric energy sales (GWh) | 9,070 | 9,212 | 9,812 | 9,053 | 8,921 | |||||
(1) Included long-term debt (excluding currently maturing debt) and noncurrent capital lease obligations. | ||||||||||
ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND SYSTEM ENERGY RESOURCES
NOTES TO RESPECTIVE FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The accompanying separate financial statements of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (the "domestic utility companies") and System Energy are included in this document and result from these companies having registered securities with the SEC. These companies maintain accounts in accordance with FERC and other regulatory guidelines. Certain previously reported amounts have been reclassified to conform to current classifications, with no effect on net income or shareholders' equity. References to Entergy Louisiana are intended to apply both to Entergy Louisiana Holdings on a consolidated basis and to Entergy Louisiana, LLC.
Entergy Louisiana, LLC Basis of Presentation
Effective December 31, 2005, Entergy Louisiana, LLC, organized under the laws of the State of Texas as part of a restructuring involving a Texas statutory merger-by-division, succeeded to all of the regulated utility operations of Entergy Louisiana, Inc. Entergy Louisiana, LLC was allocated substantially all of the property and other assets of Entergy Louisiana, Inc., including all assets used to provide retail and wholesale electric service to Entergy Louisiana, Inc.'s customers. Entergy Louisiana, LLC also assumed substantially all of the liabilities of Entergy Louisiana, Inc., including all of its debt securities and leases but excluding the outstanding preferred stock of Entergy Louisiana, Inc.
On December 31, 2005, and immediately prior to the formation of Entergy Louisiana, LLC, Entergy Louisiana, Inc. changed its state of incorporation from Louisiana to Texas and its name to Entergy Louisiana Holdings, Inc. Upon the effectiveness of the statutory merger-by-division on December 31, 2005, Entergy Louisiana, LLC was organized and Entergy Louisiana Holdings held all of Entergy Louisiana, LLC's common membership interests. All of the common membership interests of Entergy Louisiana, LLC continue to be held by Entergy Louisiana Holdings and all of the common stock of Entergy Louisiana Holdings continues to be held by Entergy Corporation.
Because the merger-by-division was a transaction involving entities under common control, Entergy Louisiana, LLC initially recognized the assets and liabilities transferred at their carrying amounts in the accounts of Entergy Louisiana Holdings at the time of the transfer. Entergy Louisiana, LLC's financial statements report results of operations for 2005 as though the merger-by-division had occurred at the beginning of 2005, and presents its 2005 balance sheet and other financial information as of the beginning of 2005 as though the assets and liabilities had been transferred at that date. Financial statements and financial information presented for prior periods has also been presented on that basis to furnish comparative information.
Use of Estimates in the Preparation of Financial Statements
The preparation of the domestic utility companies' and System Energy's financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual results are different from the estimates used.
Revenues and Fuel Costs
Entergy Arkansas, Entergy Louisiana, and Entergy Mississippi generate, transmit, and distribute electric power primarily to retail customers in Arkansas, Louisiana, and Mississippi, respectively. Entergy Gulf States generates, transmits, and distributes electric power primarily to retail customers in Texas and Louisiana. Entergy Gulf States also distributes gas to retail customers in and around Baton Rouge, Louisiana. Entergy New Orleans sells both electric power and gas to retail customers in the City of New Orleans, except for Algiers, where Entergy Louisiana is the electric power supplier.
Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. To the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings. Entergy calculates the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in the domestic utility companies' various jurisdictions. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. Therefore, changes in price and volume differences resulting from factors such as weather affect the calculation of unbilled revenues from one period to the next, and may result in variability in reported revenues from one period to the next as prior estimates are so recorded and reversed.
The domestic utility companies' rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers. Because the fuel adjustment clause mechanism allows monthly adjustments to recover fuel costs, Entergy Louisiana, Entergy New Orleans, and the Louisiana portion of Entergy Gulf States include a component of fuel cost recovery in their unbilled revenue calculations. Where the fuel component of revenues is billed based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. Entergy Mississippi's fuel factor includes an energy cost rider that is adjusted quarterly. As discussed in Note 2 to the domestic utility companies and System Energy financial statements, the MPSC approved Entergy Miss issippi's deferral of the refund of fuel over-recoveries for the third quarter of 2004 that would have been refunded in the first quarter of 2005. The deferred amount plus carrying charges was refunded in the second and third quarters of 2005. In the case of Entergy Arkansas and the Texas portion of Entergy Gulf States, their fuel under-recoveries are treated in the cash flow statements as regulatory investments because those companies are allowed by their regulatory jurisdictions to recover the fuel cost regulatory asset over longer than a twelve-month period, and the companies earn a carrying charge on the under-recovered balances.
System Energy's operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf. The capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf, plus System Energy's effective interest cost for its debt allocable to its investment in Grand Gulf.
Property, Plant, and Equipment
Property, plant, and equipment is stated at original cost. The original cost of plant retired or removed, less salvage, is charged to accumulated depreciation. Normal maintenance, repairs, and minor replacement costs are charged to operating expenses. Substantially all of the domestic utility companies' and System Energy's plant is subject to mortgage liens.
Electric plant includes the portions of Grand Gulf and Waterford 3 that have been sold and leased back. For financial reporting purposes, these sale and leaseback arrangements are reflected as financing transactions.
Net property, plant, and equipment (including property under capital lease and associated accumulated amortization) by company and functional category, as of December 31, 2005 and 2004, is shown below:
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Millions) |
||||||||||||
Production |
||||||||||||
Nuclear |
$1,065 |
$1,597 |
$1,526 |
$- |
$- |
$1,767 |
||||||
Other |
253 |
510 |
359 |
199 |
7 |
- |
||||||
Transmission |
681 |
831 |
454 |
420 |
29 |
8 |
||||||
Distribution |
1,322 |
1,461 |
1,039 |
777 |
349 |
- |
||||||
Other |
189 |
181 |
301 |
191 |
68 |
14 |
||||||
Construction work in progress |
139 |
526 |
415 |
119 |
202 |
47 |
||||||
Nuclear fuel (leased and owned) |
115 |
66 |
58 |
- |
- |
88 |
||||||
Property, plant, and equipment - net |
$3,764 |
$5,172 |
$4,152 |
$1,706 |
$655 |
$1,924 |
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Millions) |
||||||||||||
Production |
||||||||||||
Nuclear |
$951 |
$1,627 |
$1,543 |
$- |
$- |
$1,866 |
||||||
Other |
269 |
529 |
197 |
221 |
12 |
- |
||||||
Transmission |
646 |
708 |
385 |
406 |
29 |
8 |
||||||
Distribution |
1,283 |
1,339 |
1,000 |
713 |
337 |
- |
||||||
Other |
216 |
247 |
269 |
175 |
70 |
16 |
||||||
Construction work in progress |
226 |
332 |
189 |
90 |
33 |
29 |
||||||
Nuclear fuel (leased and owned) |
106 |
71 |
32 |
- |
- |
66 |
||||||
Asset retirement obligation |
24 |
- |
42 |
- |
- |
31 |
||||||
Property, plant, and equipment - net |
$3,721 |
$4,853 |
$3,657 |
$1,605 |
$481 |
$2,016 |
Depreciation is computed on the straight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation rates on average depreciable property are shown below:
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
2005 |
3.1% |
2.1% |
2.6% |
2.6% |
3.1% |
2.8% |
||||||
2004 |
3.2% |
2.1% |
2.9% |
2.5% |
2.8% |
2.9% |
||||||
2003 |
3.2% |
2.2% |
3.0% |
2.5% |
3.1% |
2.8% |
Non-utility property - at cost (less accumulated depreciation) for Entergy Gulf States is reported net of accumulated depreciation of $128.0 million and $125.1 million as of December 31, 2005 and 2004, respectively.
Jointly-Owned Generating Stations
Certain Entergy subsidiaries jointly own electric generating facilities with third parties. The investments and expenses associated with these generating stations are recorded by the Entergy subsidiaries to the extent of their respective undivided ownership interests. As of December 31, 2005, the subsidiaries' investment and accumulated depreciation in each of these generating stations were as follows:
|
|
Total |
|
|
|
||||||
(In Millions) |
|||||||||||
Entergy Arkansas - |
|||||||||||
Independence |
Unit 1 |
Coal |
815 |
31.50% |
$119 |
$77 |
|||||
Common Facilities |
Coal |
15.75% |
$31 |
$18 |
|||||||
White Bluff |
Units 1 and 2 |
Coal |
1,635 |
57.00% |
$430 |
$277 |
|||||
Entergy Gulf States - |
|||||||||||
Roy S. Nelson |
Unit 6 |
Coal |
550 |
70.00% |
$405 |
$249 |
|||||
Big Cajun 2 |
Unit 3 |
Coal |
575 |
42.00% |
$233 |
$134 |
|||||
Entergy Mississippi - |
|||||||||||
Independence |
Units 1 and 2 and Common Facilities |
Coal |
1,630 |
25.00% |
$234 |
$120 |
|||||
System Energy - |
|||||||||||
Grand Gulf |
Unit 1 |
Nuclear |
1,270 |
90.00%(2) |
$3,680 |
$1,890 |
(1) |
"Total Megawatt Capability" is the dependable load carrying capability as demonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize. |
(2) |
Includes an 11.5% leasehold interest held by System Energy. System Energy's Grand Gulf lease obligations are discussed in Note 9 to the domestic utility companies and System Energy financial statements. |
Nuclear Refueling Outage Costs
The domestic utility companies and System Energy record nuclear refueling outage costs in accordance with regulatory treatment and the matching principle. These refueling outage expenses are incurred to prepare the units to operate for the next operating cycle without having to be taken off line. Except for the River Bend plant, the costs are deferred during the outage and amortized over the period to the next outage. In accordance with the regulatory treatment of the River Bend plant, the costs are accrued in advance and included in the cost of service used to establish retail rates. Entergy Gulf States relieves the accrued liability when it incurs costs during the next River Bend outage.
Allowance for Funds Used During Construction (AFUDC)
AFUDC represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction. Although AFUDC increases both the plant balance and earnings, it is realized in cash through depreciation provisions included in rates.
Income Taxes
Entergy Corporation and the majority of its subsidiaries file a U.S. consolidated federal income tax return. Income taxes are allocated to the subsidiaries in proportion to their contribution to consolidated taxable income. SEC regulations require that no Entergy subsidiary pay more taxes than it would have paid if a separate income tax return had been filed. In accordance with SFAS 109, "Accounting for Income Taxes," deferred income taxes are recorded for all temporary differences between the book and tax basis of assets and liabilities, and for certain credits available for carryforward.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates in the period in which the law or rate was enacted.
Investment tax credits are deferred and amortized based upon the average useful life of the related property, in accordance with ratemaking treatment.
Application of SFAS 71
SFAS 101, "Accounting for the Discontinuation of Application of FASB Statement No. 71," specifies how an enterprise that ceases to meet the criteria for application of SFAS 71 for all or part of its operations should report that event in its financial statements. In general, SFAS 101 requires that the enterprise report the discontinuation of the application of SFAS 71 by eliminating from its balance sheet all regulatory assets and liabilities related to the applicable segment. Additionally, if it is determined that a regulated enterprise is no longer recovering all of its costs and therefore no longer qualifies for SFAS 71 accounting, it is possible that an impairment may exist that could require further write-offs of plant assets.
EITF 97-4: "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and 101" specifies that SFAS 71 should be discontinued at a date no later than when the effects of a transition to competition plan for all or a portion of the entity subject to such plan are reasonably determinable. Additionally, EITF 97-4 promulgates that regulatory assets to be recovered through cash flows derived from another portion of the entity that continues to apply SFAS 71 should not be written off; rather, they should be considered regulatory assets of the segment that will continue to apply SFAS 71.
See Note 2 to the domestic utility companies and System Energy financial statements for discussion of transition to competition activity in the retail regulatory jurisdictions served by the domestic utility companies. Only Texas currently has an enacted retail open access law, but Entergy believes that significant issues remain to be addressed by regulators, and the enacted law does not provide sufficient detail to reasonably determine the impact on Entergy Gulf States' regulated operations.
Cash and Cash Equivalents
Entergy considers all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities of more than three months are classified as other temporary investments on the balance sheet.
Investments
The domestic utility companies and System Energy apply the provisions of SFAS 115, "Accounting for Investments for Certain Debt and Equity Securities," in accounting for investments in decommissioning trust funds. As a result, the domestic utility companies and System Energy record the decommissioning trust funds at their fair value on the balance sheet. Because of the ability of the domestic utility companies and System Energy to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, Entergy Arkansas, Entergy Gulf States (for the regulated portion of River Bend), Entergy Louisiana, and System Energy have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the nonregulated portion of River Bend, Entergy Gulf States has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits. See Note 12 to the domestic utility comp anies and System Energy financial statements for details on the decommissioning trust funds. The domestic utility companies and System Energy record an impairment on investments when the fair market value is less than the carrying value of the investment and that condition is considered other than temporary. If a loss were recorded, it would be offset by the recording of other deferred credits.
Derivatives and Hedging
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," requires that all derivatives be recognized in the balance sheet, either as assets or liabilities, at fair value, unless they meet the normal purchase, normal sales criteria. The changes in the fair value of recognized derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction.
Contracts for commodities that will be delivered in quantities expected to be used or sold in the ordinary course of business, including certain purchases and sales of power and fuel, are not classified as derivatives. These contracts are exempted under the normal purchase, normal sales criteria of SFAS 133. Revenues and expenses from these contracts are reported on a gross basis in the appropriate revenue and expense categories as the commodities are received or delivered.
For other contracts for commodities in which Entergy is hedging the variability of cash flows related to a variable-rate asset, liability, or forecasted transactions that qualify as cash flow hedges, the changes in the fair value of such derivative instruments are reported in other comprehensive income. To qualify for hedge accounting, the relationship between the hedging instrument and the hedged item must be documented to include the risk management objective and strategy and, at inception and on an ongoing basis, the effectiveness of the hedge in offsetting the changes in the cash flows of the item being hedged. Gains or losses accumulated in other comprehensive income are reclassified as earnings in the periods in which earnings are affected by the variability of the cash flows of the hedged item. The ineffective portions of all hedges are recognized in current-period earnings.
Fair Values
The estimated fair values of the domestic utility companies' and System Energy's financial instruments and derivatives are determined using bid prices and market quotes. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that the domestic utility companies and System Energy could realize in a current market exchange. Gains or losses realized on financial instruments held by regulated businesses may be reflected in future rates and therefore do not accrue to the benefit or detriment of stockholders.
The domestic utility companies and System Energy consider the carrying amounts of most of their financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Additional information regarding financial instruments and their fair values is included in Notes 5 and 6 to the domestic utility companies and System Energy financial statements.
Impairment of Long-Lived Assets
The domestic utility companies and System Energy periodically review their long-lived assets whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the net cash flows expected to result from such operations and assets. Projected net cash flows depend on the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy over the remaining life of the assets.
River Bend AFUDC
The River Bend AFUDC gross-up is a regulatory asset that represents the incremental difference imputed by the LPSC between the AFUDC actually recorded by Gulf States Utilities on a net-of-tax basis during the construction of River Bend and what the AFUDC would have been on a pre-tax basis. The imputed amount was only calculated on that portion of River Bend that the LPSC allowed in rate base and is being amortized over the estimated remaining economic life of River Bend.
Transition to Competition Liabilities
In conjunction with electric utility industry restructuring activity in Texas, regulatory mechanisms were established to mitigate potential stranded costs. Texas restructuring legislation allowed depreciation on transmission and distribution assets to be directed toward generation assets. The liability recorded as a result of this mechanism is classified as "transition to competition" deferred credits on the balance sheet for Entergy Gulf States.
Reacquired Debt
The premiums and costs associated with reacquired debt of the domestic utility companies and System Energy (except that portion allocable to the deregulated operations of Entergy Gulf States) are being amortized over the life of the related new issuances, in accordance with ratemaking treatment.
Entergy Gulf States' Deregulated Operations
Entergy Gulf States does not apply regulatory accounting principles to its wholesale jurisdiction, Louisiana retail deregulated portion of River Bend, and the 30% interest in River Bend formerly owned by Cajun. The Louisiana retail deregulated portion of River Bend is operated under a deregulated asset plan representing a portion (approximately 16%) of River Bend plant costs, generation, revenues, and expenses established under a 1992 LPSC order. The plan allows Entergy Gulf States to sell the electricity from the deregulated assets to Louisiana retail customers at 4.6 cents per kWh or off-system at higher prices, with certain provisions for sharing such incremental revenue above 4.6 cents per kWh between ratepayers and shareholders.
The results of these deregulated operations before interest charges for the years ended December 31, 2005, 2004, and 2003 are as follows:
2005 |
2004 |
2003 |
|||
(In Thousands) |
|||||
Operating revenues |
$321,662 |
$280,279 |
$273,150 |
||
Operating expenses |
|||||
Fuel, operation, and maintenance |
205,673 |
197,275 |
177,385 |
||
Depreciation and accretion |
29,602 |
30,653 |
47,566 |
||
Total operating expense |
235,275 |
227,928 |
224,951 |
||
Operating income |
86,387 |
52,351 |
48,199 |
||
Income tax expense |
32,642 |
20,414 |
17,722 |
||
Net income from deregulated utility operations |
$53,745 |
$31,937 |
$30,477 |
The net investment associated with these deregulated operations as of December 31, 2005 and 2004 was approximately $747 and $830 million, respectively.
New Accounting Pronouncements
As discussed in Note 8 to the domestic utility companies and System Energy financial statements, Entergy adopted FIN 47, "Accounting for Conditional Asset Retirement Obligations" during the fourth quarter of 2005. FIN 47 requires that a liability be recorded currently for costs associated with a legal obligation to perform an asset retirement obligation activity for which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity but for which the obligation to perform the asset retirement activity is unconditional. FIN 47 requires that a liability be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.
SFAS 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4" and SFAS 153, "Exchanges of Nonmonetary Assets", were issued during the fourth quarter of 2004 and are effective for Entergy in 2006 and 2005, respectively. SFAS 154, "Accounting for Changes and Error Corrections" was issued in 2005 and is effective for Entergy in 2006. Entergy does not expect the impact of the issuance of these standards to be material to its financial position or results of operations.
NOTE 2. RATE AND REGULATORY MATTERS
Regulatory Assets
Other Regulatory Assets
The domestic utility companies and System Energy are subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. In addition to the regulatory assets that are specifically disclosed on the face of the balance sheets, the table below provides detail of "Other regulatory assets" that are included on the balance sheets of the domestic utility companies and System Energy as of December 31, 2005 and 2004:
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
(In Millions) |
||||||||||||
Asset Retirement Obligation - |
|
|
|
|
|
|
||||||
Removal costs - recovered through |
|
|
|
|
|
|
||||||
Deferred distribution expenses - |
|
|
|
|
|
|
||||||
Deferred fossil plant maintenance |
|
|
|
|
|
|
||||||
Deferred fuel - non-current - recovered |
|
|
|
|
|
|
||||||
Depreciation re-direct - recovery begins |
|
|
|
|
|
|
||||||
DOE Decom. and Decontamination Fees - |
|
|
|
|
|
|
||||||
Incremental ice storm costs - recovered |
|
|
|
|
|
|
||||||
Pension costs (Note 10) |
139.3 |
14.4 |
72.1 |
41.1 |
23.8 |
12.0 |
||||||
Postretirement benefits - recovered |
|
|
|
|
|
|
||||||
Provision for storm damages - recovered |
|
|
|
|
|
|
||||||
Deferred capacity - recovery timing will be |
|
|
|
|
|
|
||||||
River Bend AFUDC - recovered through |
|
|
|
|
|
|
||||||
Sale-leaseback deferral - recovered |
|
|
|
|
|
|
||||||
Spindletop gas storage facility - |
|
|
|
|
|
|
||||||
Voluntary severance deferrals - |
|
|
|
|
|
|
||||||
Unamortized loss on reaquired debt - |
|
|
|
|
|
|
||||||
Other - various |
3.0 |
13.5 |
13.9 |
1.2 |
6.3 |
0.5 |
||||||
Total |
$461.0 |
$604.4 |
$498.5 |
$186.2 |
$166.1 |
$293.0 |
(a) |
As a result of the Entergy New Orleans bankruptcy proceeding, the timing of recovery of its deferred costs may be affected. Refer to Note 16 to the domestic utility companies and System Energy financial statements for details of the bankruptcy proceeding. |
As a result of Hurricane Katrina and Hurricane Rita that hit the domestic utilities' service territory in August and September 2005, the domestic utility companies have recorded accruals for the estimated storm restoration costs. The domestic utility companies recorded some of these costs as regulatory assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. The domestic utility companies are pursuing a broad range of initiatives to recover storm restoration costs. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for Hurricanes Katrina and Rita including Community Block Grants, and pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies. The domestic utility companies are unable to predict the degree of success it may have in these initiatives, the amount of re
storation costs it may recovery, or the timing of such recovery. |
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
(In Millions) |
||||||||||||
Asset Retirement Obligation |
$141.2 |
$- |
$141.6 |
$- |
$- |
$97.3 |
||||||
Removal costs |
34.9 |
0.9 |
- |
32.7 |
1.3 |
17.1 |
||||||
Deferred distribution expenses |
- |
- |
- |
- |
4.9 |
- |
||||||
Deferred fossil plant maintenance |
|
|
|
|
|
|
||||||
Deferred fuel - non-current |
13.7 |
- |
- |
8.1 |
- |
- |
||||||
Depreciation re-direct |
- |
79.1 |
- |
- |
- |
- |
||||||
DOE Decom. and Decontamination Fees |
13.1 |
2.3 |
5.0 |
- |
- |
4.9 |
||||||
Incremental ice storm costs |
14.2 |
- |
- |
- |
- |
- |
||||||
Low-level radwaste |
16.2 |
3.1 |
- |
- |
- |
- |
||||||
Pension costs |
70.8 |
- |
34.1 |
20.2 |
15.2 |
7.4 |
||||||
Postretirement benefits |
19.1 |
- |
- |
- |
- |
- |
||||||
Provision for storm damages |
29.0 |
57.1 |
41.7 |
- |
- |
- |
||||||
Deferred capacity |
- |
- |
25.4 |
- |
- |
- |
||||||
River Bend AFUDC |
- |
37.5 |
- |
- |
- |
- |
||||||
Sale-leaseback deferral |
- |
- |
- |
- |
- |
127.3 |
||||||
Spindletop gas storage facility |
- |
42.3 |
- |
- |
- |
- |
||||||
Unamortized loss on reaquired debt |
37.0 |
43.4 |
27.4 |
15.6 |
4.6 |
41.8 |
||||||
Other |
11.0 |
19.3 |
27.3 |
6.1 |
10.8 |
0.5 |
||||||
Total |
$400.2 |
$285.0 |
$302.5 |
$82.7 |
$40.4 |
$296.3 |
In December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. The notice proposes recovery of approximately $14.7 million, including carrying charges, annually over a five-year period. A hearing on this matter is expected in April 2006. Entergy Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration costs associated with the hurricanes incurred after November 30, 2005 and to reflect receipt of insurance and federal aid.
In December 2005, Entergy Gulf States filed with the LPSC for interim recovery of $141 million of storm costs. The filing proposes implementing an $18.7 million annual interim surcharge, including carrying charges, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Gulf States recover $850,000 per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Gulf States' interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $6 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Gulf States of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment cla use in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $6 million cap is reached. Beginning in September 2006, Entergy Gulf States' interim storm cost recovery of $850,000 per month shall be through base rates. In addition, all excess earnings that Entergy Gulf States may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery.
In December 2005, Entergy Louisiana filed with the LPSC for interim recovery of $355 million of storm costs. The filing proposes implementing a $41.8 million annual interim surcharge, including carrying charges, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Louisiana recover $2 million per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Louisiana's interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $14 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Louisiana of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment clause in those&nb sp;successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $14 million cap is reached. Beginning in September 2006, Entergy Louisiana's interim storm cost recovery of $2 million per month shall be through base rates. In addition, all excess earnings that Entergy Louisiana may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery.
Deferred fuel costs
The domestic utility companies are allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric and gas rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and the current fuel and purchased power costs is recorded as "Deferred fuel costs" on the domestic utility companies' financial statements. The table below shows the amount of deferred fuel costs as of December 31, 2005 and 2004 that Entergy expects to recover or (refund) through the fuel mechanisms of the domestic utility companies, subject to subsequent regulatory review.
|
2005 |
|
2004 |
|
(In Millions) |
||
|
|
|
|
Entergy Arkansas |
$204.2 |
|
$7.4 |
Entergy Gulf States |
$324.4 |
|
$90.1 |
Entergy Louisiana |
$21.9 |
|
$8.7 |
Entergy Mississippi |
$114.0 |
|
($22.8) |
Entergy New Orleans |
$30.6 |
|
$2.6 |
Entergy Arkansas
In March 2005, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using 1,000 kWh per month, increased 31 percent primarily attributable to a true-up adjustment for an under-recovery balance of $11.2 million and a nuclear refueling adjustment resulting from outages scheduled in 2005 at ANO 1 and 2 and Grand Gulf.
In September 2005, Entergy Arkansas filed with the APSC an interim energy cost rate per the energy cost recovery rider that provides for an interim adjustment should the cumulative over- or under-recovery for the energy period exceed 10 percent of the energy costs for that period. As of the end of July 2005, the cumulative under-recovery of fuel and purchased power expenses had exceeded the 10 percent threshold due to increases in purchased power expenditures resulting from higher natural gas prices. The interim rate became effective the first billing cycle in October 2005. In early October 2005, the APSC initiated an investigation into Entergy Arkansas' interim rate. The investigation is focused on Entergy Arkansas' 1) gas contracting, portfolio, and hedging practices; 2) wholesale purchases during the period; 3) management of the coal inventory at its coal generation plants; and 4) response to the contractual failure of the railroads to provide coal deliveries. The APSC established a procedural schedule with testimony from Entergy Arkansas, the APSC Staff, and intervenors culminating in a public hearing in May 2006.
Entergy Gulf States (Texas)
In the Texas jurisdiction, Entergy Gulf States' rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including carrying charges, not recovered in base rates. Under the current methodology, semi-annual revisions of the fixed fuel factor may be made in March and September based on the market price of natural gas. Entergy Gulf States will likely continue to use this methodology until the start of retail open access, which has been delayed. The amounts collected under Entergy Gulf States' fixed fuel factor and any interim surcharge implemented until the date retail open access commences are subject to fuel reconciliation proceedings before the PUCT. In the Texas jurisdiction, Entergy Gulf States' deferred electric fuel costs are $203.2 million as of December 31, 2005, which includes the following:
Amount |
||
(In Millions) |
||
|
||
Under-recovered fuel costs for the period 8/05 - 12/05 |
$101.0 |
|
Items to be addressed as part of unbundling |
$29.0 |
|
Other (includes imputed capacity charges) |
$27.1 |
The PUCT has ordered that the imputed capacity charges be excluded from fuel rates and therefore recovered through base rates. Entergy Gulf States filed with the PUCT in July 2005 a request for implementation of an incremental purchased capacity recovery rider, consistent with the recently passed Texas legislation discussed below under "Electric Industry Restructuring and the Continued Application of SFAS 71." The rider requested $23.1 million annually in incremental revenues on a Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligation to purchase power from Entergy Louisiana's recently acquired Perryville plant, over what is already in Entergy Gulf States' base rates. Entergy Gulf States reached an initial agreement with parties that the date upon which cost recovery and cost reconciliation would begin is September 1, 2005. A further non-unanimous settlement was reached with most of the partie s that allows for the rider to be implemented effective December 1, 2005 and collect $18 million annually. The settlement also provides for a fuel reconciliation to be filed by Entergy Gulf States by May 15, 2006 that will resolve the remaining issues in the case with the exception of the amount of purchased power in current base rates and the costs to which load growth is attributed, both of which were settled. The hearing with respect to the non-unanimous settlement, which was opposed by the Office of Public Utility Counsel, was conducted on October 19, 2005 before the ALJ, who issued a Proposal for Decision supporting the settlement. In December 2005, the PUCT approved the settlement. The amounts collected by the purchased capacity recovery rider are subject to reconciliation.
In September 2005, Entergy Gulf States filed an application with the PUCT to implement a net $46.1 million interim fuel surcharge, including interest, to collect under-recovered fuel and purchased power expenses incurred from August 2004 through July 2005. The application was approved, and the surcharge will be collected over a twelve-month period beginning in January 2006. On March 1, 2006, Entergy Gulf States filed with the PUCT an application to implement an interim fuel surcharge in connection with the under-recovery of $97 million including interest of eligible fuel costs for the period August 2005 through January 2006. This surcharge is in addition to the interim surcharge that went into effect in January 2006. Entergy Gulf States has requested that the interim surcharge requested in its March 2006 filing be implemented by June 1, 2006 and remain in effect for twelve months. Amounts collected through the interim fuel surcharges are subject to final reconciliation in a future fue l reconciliation proceeding.
In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003 reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. This amount includes $8.6 million of under-recovered costs that Entergy Gulf States asked to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in the January 2001 proceeding, discussed below, which is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommends disallowing $10.7 million (excluding interest) related to these two issues. In April 2005, the PUCT issued an order reversing in part the ALJ's Proposal for Decision and allowing Entergy Gulf States to recover a part of its request related to the imputed capacity and River Bend payment issues. The PUCT's order reduced the disallowance in the case to $8.3 million. Both Entergy Gulf States and certain cities served by Entergy Gulf States filed motions for rehearing on these issues which were denied by the PUCT. Entergy Gulf States and certain Cities filed appeals to the Travis County District Court. The appeals are pending. Any disallowance will be netted against Entergy Gulf States' under-recovered costs and will be included in its deferred fuel costs balance.
In January 2001, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period from March 1999 through August 2000. Entergy Gulf States was reconciling approximately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested authority to collect $28 million, plus interest, of under-recovered fuel and purchased power costs. In August 2002, the PUCT reduced Entergy Gulf States' request to approximately $6.3 million, including interest through July 31, 2002. Approximately $4.7 million of the total reduction to the requested surcharge relates to nuclear fuel costs that the PUCT deferred ruling on at that time. In October 2002, Entergy Gulf States appealed the PUCT's final order in Texas District Court. In its appeal, Entergy Gulf States is challenging the PUCT's disallowance of approximately $4.2 million related to imputed capacity costs and its disallowance related to costs for energy delivered from the 30% non-regulate d share of River Bend. The case was argued before the Travis County District Court in August 2003 and the Travis County District Court judge affirmed the PUCT's order. In October 2003, Entergy Gulf States appealed this decision to the Court of Appeals. Oral argument before the appellate court occurred in September 2004, and the Court denied Entergy Gulf States' appeal. In October 2005, Entergy Gulf States filed a petition for review by the Texas Supreme Court, and in December 2005, the Texas Supreme Court requested that responses be filed to Entergy Gulf States' petition as part of its ongoing consideration of whether to exercise its discretion to grant review of this matter. Those responses and Entergy Gulf States' reply to those responses were filed in January 2006.
Entergy Gulf States (Louisiana) and Entergy Louisiana
In Louisiana, Entergy Gulf States and Entergy Louisiana recover electric fuel and purchased power costs for the upcoming month based upon the level of such costs from the prior month. In Louisiana, Entergy Gulf States' purchased gas adjustments include estimates for the billing month adjusted by a surcharge or credit for deferred fuel expense arising from monthly reconciliations of actual fuel costs incurred with fuel cost revenues billed to customers.
In August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The global settlement approved by the LPSC in March 2005, discussed below in "Retail Rate Proceedings," resolves the uprate imprudence disallowance and is no longer at issue in this proceeding. Subsequent to the issuance of the audit report, the scope of this docket was expanded to include a review of annual reports on fuel and purchased power transactions with affiliates and a prudence review of transmi ssion planning issues. Also, in July 2005, the LPSC expanded the audit to include the years 2002 through 2004. A procedural schedule has been established and LPSC staff and intervenor testimony is due in April 2006.
In January 2003, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Gulf States and its affiliates pursuant to a November 1997 LPSC general order. The audit will include a review of the reasonableness of charges flowed by Entergy Gulf States through its fuel adjustment clause in Louisiana for the period January 1, 1995 through December 31, 2002. Discovery is underway, but a detailed procedural schedule extending beyond the discovery stage has not yet been established, and the LPSC staff has not yet issued its audit report. In June 2005, the LPSC expanded the audit to include the years through 2004.
In November 2005, the LPSC authorized its staff to initiate an expedited proceeding to audit the fuel and power procurement activities of Entergy Louisiana and Entergy Gulf States for the period January 1, 2005 through October 31, 2005.
Entergy Mississippi
Entergy Mississippi's rate schedules include an energy cost recovery rider which is adjusted quarterly to reflect accumulated over- or under-recoveries from the second prior quarter. In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 of $21.3 million were deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges was refunded through the energy cost recovery rider in the second and third quarters of 2005.
In May 2003, Entergy Mississippi filed and the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Under the MPSC's order, Entergy Mississippi deferred until 2004 the collection of fuel under-recoveries for the first and second quarters of 2003 that would have been collected in the third and fourth quarters of 2003, respectively. The deferred amount of $77.6 million plus carrying charges was collected through the energy cost recovery rider over a twelve-month period that began in January 2004.
Entergy New Orleans
In June and November 2004, the City Council passed resolutions implementing a package of measures developed by Entergy New Orleans and the Council Advisors to protect customers from potential gas price spikes during the 2004 - - 2005 winter heating season. These measures include: maintaining Entergy New Orleans' financial hedging plan for its purchase of wholesale gas, and deferral of collection of up to $6.2 million of gas costs associated with a cap on the purchased gas adjustment in November and December 2004 and in the event that the average residential customer's gas bill were to exceed a threshold level. The deferral of $1.7 million resulting from these caps was recovered over a seven-month period that began in April 2005.
In November 2004, the City Council directed Entergy New Orleans to confer with the Council Advisors regarding possible modification of the current gas cost collection mechanism in order to address concerns regarding its fluctuations particularly during the winter heating season. In June 2005, Entergy New Orleans filed a new purchased gas adjustment tariff (PGA tariff) with the City Council. The City Council approved the PGA tariff which became effective with billings in October 2005. In October 2005, the City Council approved modifications to the PGA tariff that became effective in November 2005. The modifications are intended to minimize fluctuations in PGS rates during the winter months.
Retail Rate Proceedings
Filings with the APSC (Entergy Arkansas)
Retail Rates
No significant retail rate proceedings are pending in Arkansas at this time.
Filings with the PUCT and Texas Cities (Entergy Gulf States)
Retail Rates
Entergy Gulf States is operating in Texas under a base rate freeze that has remained in effect during the delay in the implementation of retail open access in Entergy Gulf States' Texas service territory. As discussed in "Electric Industry Restructuring and the Continued Application of SFAS 71" below, a Texas law was enacted in June 2005 which includes provisions in the Texas legislation regarding Entergy Gulf States' ability to file a general rate case and to file for recovery of transition to competition costs. As authorized by the legislation, in August 2005, Entergy Gulf States filed with the PUCT an application for recovery of its transition to competition costs. Entergy Gulf States requested recovery of $189 million in transition to competition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The $189 million represents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to be incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. Entergy Gulf States has reached a unanimous settlement agreement in principle on all issues with the active parties in the transition to competition cost recovery case. The agreement in principle allows Entergy Gulf States to recover $14.5 million per year in transition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006, subject to refund. Entergy Gulf States expects that the PUCT will consider the formal settlement document, which is currently being developed, in the second quarter 2006.
The Texas law enacted also allowed Entergy Gulf States to file with the PUCT for recovery of certain incremental purchased capacity costs which was implemented effective December 1, 2005. This proceeding is discussed above under "Deferred Fuel Costs."
Recovery of River Bend Costs
In March 1998, the PUCT disallowed recovery of $1.4 billion of company-wide abeyed River Bend plant costs, which have been held in abeyance since 1988. Entergy Gulf States appealed the PUCT's decision on this matter to the Travis County District Court in Texas. In April 2002, the Travis County District Court issued an order affirming the PUCT's order on remand disallowing recovery of the abeyed plant costs. Entergy Gulf States appealed this ruling to the Third District Court of Appeals. In July 2003, the Third District Court of Appeals unanimously affirmed the judgment of the Travis County District Court. After considering the progress of the proceeding in light of the decision of the Court of Appeals, Entergy Gulf States accrued for the loss that would be associated with a final, non-appealable decision disallowing the abeyed plant costs. The net carrying value of the abeyed plant costs was $107.7 million at the time of the Court of Appeals decision. Accrual of the $10 7.7 million loss was recorded in the second quarter of 2003 as miscellaneous other income (deductions) and reduced net income by $65.6 million after-tax. In September 2004, the Texas Supreme Court denied Entergy Gulf States' petition for review, and Entergy Gulf States filed a motion for rehearing. In February 2005, the Texas Supreme Court denied the motion for rehearing, and the proceeding is now final.
Filings with the LPSC
Global Settlement (Entergy Gulf States and Entergy Louisiana)
In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The net income effect of $48.6 million for Entergy Gulf States and $8.6 million for Entergy Louisiana was recognized primarily in 2004 when Entergy Gulf States and Entergy Louisiana recorded provisions for the expected outcome of the proceeding. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Lou isiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits were issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to Entergy Gulf States. Entergy Gulf States made its initial formula rate plan filing in June 2005, as discussed below. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States.
Retail Rates - Electric
(Entergy Louisiana)
Entergy Louisiana made a rate filing with the LPSC requesting a base rate increase in January 2004. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that included an annual base rate increase of approximately $18.3 million that was implemented, subject to refund, effective with May 2005 billings. In May 2005, the LPSC approved a modified settlement which, among other things, reduces depreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change in rates. Subsequently, in June 2005, Entergy Louisiana made a revised compliance filing with the LPSC supporting a revised depreciation rate for Waterford 3, which reflects the removal of interim additions, and a rate increase from the purchase of the Perryville power plant, which results in a net $0.8 million annual rate reduction. Entergy Louisiana reduced rates effective with the first billing cycle in July 2005 and refunded excess revenue collected dur ing May 2005, including interest, in August 2005.
The May 2005 rate settlement includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initial formula rate plan filing will be in May 2006 based on a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.
Retail Rates - Gas (Entergy Gulf States)
In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan with an ROE mid-point of 10.5%.
In January 2006, Entergy Gulf States filed with the LPSC its gas rate stabilization plan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. Approval by the LPSC and implementation are not expected until the second quarter of 2006.
Filings with the MPSC (Entergy Mississippi)
Entergy Mississippi made its annual formula rate plan filing with the MPSC in March 2005 based on a 2004 test year. In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and Entergy Mississippi that provides for no change in rates based on a performance-adjusted ROE mid-point of 10.50%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.
Power Management Rider
In November 2005, the MPSC approved the purchase of the 480MW Attala power plant. In December 2005, the MPSC issued an order approving the investment cost recovery through its power management rider and limited the recovery to a period that begins with the closing date of the purchase and ends the earlier of the date costs are incorporated into base rates or December 31, 2006. The MPSC order also provided that any reserve equalization benefits be credited to the annual ownership costs beginning with the date that Entergy Mississippi begins recovery of the Hurricane Katrina restoration costs or July 1, 2006, whichever is earlier. On December 9, 2005, Entergy Mississippi filed a compliance rider. Entergy Mississippi purchased the Attala power plant in January 2006.
Grand Gulf Accelerated Recovery Tariff (GGART)
In September 1998, the FERC approved the GGART for Entergy Mississippi's allocable portion of Grand Gulf, which was filed with the FERC in August 1998. The GGART provided for the acceleration of Entergy Mississippi's Grand Gulf purchased power obligation over the period October 1, 1998 through June 30, 2004. In May 2003, the MPSC authorized the cessation of the GGART effective July 1, 2003. Entergy Mississippi filed notice of the change with the FERC, and the FERC approved the filing on July 30, 2003. Entergy Mississippi accelerated a total of $168.4 million of Grand Gulf purchased power obligation costs under the GGART over the period October 1, 1998 through June 30, 2003.
Filings with the City Council (Entergy New Orleans)
Formula Rate Plans
In April 2005, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings showed that a decrease of $0.2 million in electric revenues was warranted and an increase of $3.9 million in gas revenues was warranted. In addition, in May 2005, Entergy New Orleans filed with the City Council a request for continuation of the formula rate plans and generation performance-based rate plan (G-PBR) for an additional three years. In August 2005, Entergy New Orleans, the City Council advisors, and the intervenors entered into an agreement in principle which provided, among other things, for a reduction in the Customer Care System investment of $3.2 million and for a reduction in Entergy New Orleans' electric base rates of $2.5 million and no change in Entergy New Orleans' gas base rates. The agreement provided for the continuation of the electric and gas formula rate plans for two more annual cycles, effective September 1, 2005, with a target eq
uity ratio of 45% as well as a mid-point return on equity (ROE) of 10.75%. The ROE band-width is 100 basis points from the mid-point for electric operations. For gas operations, the ROE band-width is 50 basis points from the mid-point and zero basis points for the 2005 evaluation period. The agreement in principle also includes the continuation and modification of the G-PBR by separating the operation of the G-PBR from the formula rate plan so that the core business' electric rates are not set on a prospective basis by reference to G-PBR earnings. The agreement in principle provided for a $4.5 million cap on Entergy New Orleans' share of G-PBR savings. The G-PBR plan, however, has been temporarily suspended due to impacts from Hurricane Katrina. Entergy New Orleans will notify the City Council's advisors and the City Council at such time as it is reasonable to resume the operation of the
G-PBR.
In August 2005, prior to Hurricane Katrina, the Council Utility, Cable and Telecommunications Committee voted to recommend to the City Council a resolution approving this agreement in principle. The City Council was to consider this recommendation at its regularly scheduled meeting on September 1, 2005, but this meeting did not occur due to Hurricane Katrina. On August 31, 2005, the chairman of the Council Utility, Cable and Telecommunications Committee issued a letter authorizing Entergy New Orleans to implement the agreement in principle in accordance with the resolution previously considered by this Council committee, and advising Entergy New Orleans that the City Council would consider the ratification of this letter authorization at the first available opportunity. On September 27, 2005, the City Council ratified the August 31, 2005 letter, and deemed the resolution approving the agreement in principle to be effective as of September 1, 2005.
In May 2003, the City Council approved a resolution allowing for a total increase of $30.2 million in electric and gas base rates effective June 1, 2003. In April 2004, Entergy New Orleans made filings with the City Council as required by the earnings review process prescribed by the Gas and Electric Formula Rate Plans approved by the City Council in 2003. The filings sought an increase in Entergy New Orleans' electric revenues of $1.2 million and an increase in Entergy New Orleans' gas revenues of $32,000. The Council Advisors and intervenors reviewed the filings, and filed their recommendations in July 2004. In August 2004, in accordance with the City Council's requirements for the formula rate plans, Entergy New Orleans made a filing with the City Council reflecting the parties' concurrence that no change in Entergy New Orleans' electric or gas rates is warranted. Later in August 2004, the City Council approved an unopposed settlement among Entergy New Orleans, the Council Advi sors, and the intervenors in connection with the Gas and Electric Formula Rate Plans. In accordance with the resolution approving the settlement, Entergy New Orleans' gas and electric base rates remain unchanged from levels set in May 2003. The resolution ordered Entergy New Orleans to defer $3.9 million relating to voluntary severance plan costs allocated to its electric operations and $1.0 million allocated to its gas operations, which amounts were accrued on its books in 2003, and to record on its books regulatory assets in those amounts to be amortized over five years effective January 2004. Entergy New Orleans was also ordered to defer $6.0 million of fossil plan maintenance expense incurred in 2003 and to record on its books a regulatory asset in that amount to be amortized over five years effective January 2003.
Fuel Adjustment Clause Litigation
In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the City Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plaintiffs also se ek to recover interest and attorneys' fees. Entergy filed exceptions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over these issues rests with the City Council and FERC. In March 2004, the plaintiffs supplemented and amended their petition. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. The suit in state court has been stayed by stipulation of the parties pending review of the decision by the City Council in the proceeding discussed in the next paragraph.
Plaintiffs also filed a corresponding complaint with the City Council in order to initiate a review by the City Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed on behalf of the plaintiffs in this proceeding asserting, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in Entergy New Orleans customers being overcharged by more than $100 million over a period of years. Hearings were held in February and March 2002. In February 2004, the City Council approved a resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. The resolution concludes, among other things, that the record does not support an allegat ion that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability associated with this proceeding. The plaintiffs appealed the City Council resolution to the state courts. On May 26, 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiff's claim that the refund amount should be higher.
In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal. Subsequent to Entergy New Orleans' filing of a bankruptcy petition in the Eastern District of Louisiana, Entergy New Orleans filed a Notice of Stay with the Court of Appeal. The Bankruptcy Court lifted the stay with respect to the plaintiffs' appeal of the Civil District Court decision, but the class action lawsuit remains stayed. In February 2006, Entergy New Orleans filed a notice removing the class action lawsuit from the Civil District Court to the U.S. District Court for the Eastern District of Louisiana. Additionally, in the Entergy New Orleans bankruptcy proceeding, the named plaintiffs in the Entergy New Orleans fuel clause lawsuit, together with the named plaintiffs in the Entergy New Orleans rate of return lawsuit, filed a Complaint for Declaratory Judgment asking the court to declare that Entergy New Orleans, Entergy Corporation, and Entergy Services are a single business enterprise, and as such, are liable in solido with Entergy New Orleans for any claims asserted in the Entergy New Orleans fuel clause lawsuit and the Entergy New Orleans rate of return lawsuit, and alternatively, that the automatic stay be lifted to permit the movants to pursue the same relief in sate court. Answers were due in this adversary proceeding in February 2006, but Entergy New Orleans has requested an extension to answer until March 2006.
Electric Industry Restructuring and the Continued Application of SFAS 71
Although Arkansas and Texas enacted retail open access laws, the retail open access law in Arkansas has now been repealed. Retail open access in Entergy Gulf States' service territory in Texas has been delayed. Entergy believes that significant issues remain to be addressed by Texas regulators, and the enacted law does not provide sufficient detail to allow Entergy Gulf States to reasonably determine the impact on Entergy Gulf States' regulated operations. Entergy therefore continues to apply regulatory accounting principles to the retail operations of all of the domestic utility companies.
Texas
(Entergy Gulf States)
As ordered by the PUCT, in January 2003, Entergy Gulf States filed its proposal for an interim solution (retail open access without a FERC-approved RTO), which among other elements, included:
After considering the proposal, in an April 2003 order the PUCT set forth a sequence of proceedings and activities designed to initiate an interim solution. These proceedings and activities included initiating a proceeding to certify an independent organization to administer market protocols and ensure nondiscriminatory access to transmission and distribution systems.
In July 2004 the PUCT denied Entergy's application to certify Entergy's transmission organization as an independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an interim solution for retail open access in Entergy Gulf States' Texas service territory, termination of the pilot project in that territory, and a delay in retail open access in that territory until either a FERC-approved RTO is in place or some other independent transmission entity is certified under Texas law. Several parties have appealed the termination of the pilot program aspect of the order, claiming the issue was not properly a part of the proceeding.
In June 2005, a Texas law was enacted which provides that:
Entergy Gulf States made the January 2006 filing regarding the identification of power region(s) required by the 2005 legislation, and based on the statutory requirements for the certification of a qualified power region (QPR), previous PUCT rulings, and Entergy Gulf States' geographical location, Entergy Gulf States identified three potential power regions:
Based on previous rulings of the PUCT, and absent reconsideration of those rulings, Entergy Gulf States believes that the third alternative - an ICT operating in Entergy's market area - is not likely to be a viable QPR alternative at this time. Accordingly, while noting this alternative, Entergy Gulf States' filing focuses on the first two alternatives, which are expected to meet the statutory requirements for certification so long as certain key implementation issues can be resolved. Entergy Gulf States' filing enumerated and discussed the corresponding steps and a high-level schedule associated with certifying either of these two power regions.
Entergy Gulf States recommended that the PUCT open a project for the purpose of involving stakeholders in the selection of the single power region that Entergy Gulf States should request for certification. Entergy Gulf States notes that House Bill 1567 also directs Entergy Gulf States to file a transition to competition filing no later than January 1, 2007. The contents of the January 1, 2007 filing will be affected by the power region selected. Accordingly, Entergy Gulf States recommended that the goal of the project should be to reach consensus on a power region in a timely manner to inform Entergy Gulf States' January 1, 2007 filing.
FERC Settlement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
In November 1994, FERC approved an agreement settling a long-standing dispute involving income tax allocation procedures of System Energy. In accordance with the agreement, System Energy refunded a total of approximately $62 million, plus interest, to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans through June 2004. System Energy also reclassified from utility plant to other deferred debits approximately $81 million of other Grand Gulf costs. Although such costs were excluded from rate base, System Energy amortized and recovered these costs over a 10-year period. Interest on the $62 million refund and the loss of the return on the $81 million of other Grand Gulf costs reduced Entergy's and System Energy's net income by approximately $10 million annually.
NOTE 3. INCOME TAXES
Income tax expenses for 2005, 2004, and 2003 consist of the following:
|
|
|
Entergy |
Entergy |
|
|
|
|||||||
(In Thousands) |
||||||||||||||
Current: | ||||||||||||||
Federal (a)(b) |
($5,534) |
($256,561) |
($139,018) |
($38,109) |
($115,504) |
($141,249) |
$171,318 |
|||||||
State (a)(b) |
36 |
(37,962) |
10,249 |
10,249 |
(8,547) |
(13,115) |
10,566 |
|||||||
Total (a)(b) |
(5,498) |
(294,523) |
(128,769) |
(27,860) |
(124,051) |
(154,364) |
181,884 |
|||||||
Deferred - net |
106,898 |
410,500 |
229,279 |
128,370 |
159,333 |
156,581 |
(109,065) |
|||||||
Investment tax credit | ||||||||||||||
adjustments - net |
(4,452) |
(5,707) |
(3,691) |
(3,691) |
(1,329) |
(427) |
(3,476) |
|||||||
Recorded income tax expense |
$96,948 |
$110,270 |
$96,819 |
$96,819 |
$33,953 |
$1,790 |
$69,343 |
|
|
|
Entergy |
Entergy |
|
|
|
|||||||
(In Thousands) |
||||||||||||||
Current: | ||||||||||||||
Federal (a) |
$14,490 |
$42,436 |
$2,439 |
$2,439 |
($23,568) |
($19,259) |
$222,622 |
|||||||
State (a) |
8,727 |
7,944 |
1,957 |
1,957 |
(1,221) |
(3,655) |
33,926 |
|||||||
Total (a) |
23,217 |
50,380 |
4,396 |
4,396 |
(24,789) |
(22,914) |
256,548 |
|||||||
Deferred - net |
70,674 |
63,615 |
80,207 |
80,207 |
63,234 |
40,226 |
(175,059) |
|||||||
Investment tax credit | ||||||||||||||
adjustments - net |
(4,827) |
(5,707) |
(5,128) |
(5,128) |
(1,405) |
(444) |
(3,476) |
|||||||
Recorded income tax expense |
|
|
|
|
|
|
|
|
|
|
Entergy |
Entergy |
|
|
|
|||||||
(In Thousands) |
||||||||||||||
Current: | ||||||||||||||
Federal (a) |
$40,632 |
($11,535) |
($745,724) |
($745,724) |
($2,969) |
($7,655) |
$95,670 |
|||||||
State (a) |
16,306 |
(1,503) |
(16,243) |
(16,243) |
2,565 |
(1,871) |
15,382 |
|||||||
Total (a) |
56,938 |
(13,038) |
(761,967) |
(761,967) |
(404) |
(9,526) |
111,052 |
|||||||
Deferred - net |
53,309 |
49,365 |
864,656 |
864,656 |
36,240 |
15,853 |
(31,731) |
|||||||
Investment tax credit | ||||||||||||||
adjustments - net |
(4,951) |
(12,078) |
(5,281) |
(5,281) |
(1,405) |
(452) |
(3,476) |
|||||||
Recorded income tax expense |
|
|
|
|
|
|
|
(a) |
Entergy Louisiana's actual cash taxes paid/(refunded) were $11,116 in 2005, ($70,650) in 2004, and $35,128 in 2003. Entergy Louisiana's mark-to-market tax accounting election significantly reduced taxes paid in 2002. In 2001, Entergy Louisiana changed its method of accounting for tax purposes related to its wholesale electric power contracts. The most significant of these is the contract to purchase power from the Vidalia project (the contract is discussed in Note 8 to the domestic utility companies and System Energy financial statements). The new tax accounting method has provided a cumulative cash flow benefit of approximately $664 million through 2005, which could reverse in the years 2006 through 2031 depending on several variables, including the price of power. The election did not reduce book income tax expense. |
(b) |
In 2003, the domestic utility companies and System Energy filed with the IRS a change in tax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi realized $2 milli on, and System Energy realized $138 million in cash tax benefit from the method change. The IRS issued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas' share of this reversal is $270 million. Entergy Gulf States' share is $148 million. Entergy Louisiana's share is $145 million. Entergy Mississippi's share is $124 million. Entergy New Orleans' share is $27 million. System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new regulati ons has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time. However, to the extent the individual companies making this election do not have other deductions or sufficient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million and System Energy would owe $9 million. The new tax accounting method change is also subject to IRS scrutiny. Should the IRS fully deny the use of Entergy's tax accounting method for cost of goods sold, the companies would have to pay back all of the benefits received. |
Total income taxes differ from the amounts computed by applying the statutory income tax rate to income before taxes. The reasons for the differences for the years 2005, 2004, and 2003 are:
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
2005 |
Arkansas |
Gulf States |
Louisiana |
Mississippi |
New Orleans |
Energy |
||||||
(In Thousands) |
||||||||||||
Computed at statutory rate (35%) |
$95,054 |
$110,868 |
$78,715 |
$33,619 |
$1,064 |
$63,345 |
||||||
Increases (reductions) in tax |
||||||||||||
resulting from: |
||||||||||||
State income taxes net of |
||||||||||||
federal income tax effect |
11,318 |
10,204 |
7,213 |
3,154 |
221 |
6,567 |
||||||
Regulatory differences - |
||||||||||||
utility plant items |
540 |
5,087 |
11,135 |
|
255 |
2,441 |
9,525 |
|||||
Amortization of investment |
||||||||||||
tax credits |
(4,452) |
(5,316) |
(3,691) |
(1,332) |
(424) |
(3,476) |
||||||
Flow-through/permanent |
||||||||||||
differences |
(3,148) |
(8,843) |
(4,420) |
(1,344) |
(1,439) |
(6,626) |
||||||
Other - net |
(2,364) |
|
(1,730) |
7,867 |
(399) |
(73) |
8 |
|||||
Total income taxes |
$96,948 |
$110,270 |
$96,819 |
$33,953 |
$1,790 |
$69,343 |
||||||
Effective Income Tax Rate |
35.7% |
34.8% |
43.0% |
35.3% |
58.9% |
38.3% |
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
2004 |
Arkansas |
Gulf States |
Louisiana |
Mississippi |
New Orleans |
Energy |
||||||
(In Thousands) |
||||||||||||
Computed at statutory rate (35%) |
$80,946 |
$105,194 |
$72,440 |
$38,688 |
$15,729 |
$64,386 |
||||||
Increases (reductions) in tax |
||||||||||||
resulting from: |
||||||||||||
State income taxes net of |
||||||||||||
federal income tax effect |
12,204 |
8,289 |
6,411 |
3,845 |
1,158 |
7,665 |
||||||
Regulatory differences - |
||||||||||||
utility plant items |
13,775 |
6,951 |
10,052 |
(1,482) |
1,373 |
10,528 |
||||||
Amortization of investment |
||||||||||||
tax credits |
(4,827) |
(5,316) |
(5,128) |
(1,405) |
(444) |
(3,476) |
||||||
Flow-through/permanent |
||||||||||||
differences |
(9,127) |
(7,080) |
(3,576) |
(2,114) |
(878) |
(993) |
||||||
Other - net |
(3,907) |
250 |
(724) |
(492) |
(70) |
(97) |
||||||
Total income taxes |
$89,064 |
$108,288 |
$79,475 |
$37,040 |
$16,868 |
$78,013 |
||||||
Effective Income Tax Rate |
38.5% |
36.0% |
38.4% |
33.5% |
37.5% |
42.4% |
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
2003 |
Arkansas |
Gulf States |
Louisiana |
Mississippi |
New Orleans |
Energy |
||||||
(In Thousands) |
||||||||||||
Computed at statutory rate (35%) |
$80,957 |
$30,850 |
$85,247 |
$35,522 |
$4,807 |
$63,647 |
||||||
Increases (reductions) in tax |
||||||||||||
resulting from: |
||||||||||||
State income taxes net of |
||||||||||||
federal income tax effect |
12,987 |
1,270 |
7,764 |
3,000 |
21 |
7,765 |
||||||
Regulatory differences - |
||||||||||||
utility plant items |
15,994 |
13,260 |
10,568 |
(930) |
2,045 |
11,530 |
||||||
Amortization of investment |
||||||||||||
tax credits |
(4,951) |
(8,797) |
(5,281) |
(1,404) |
(452) |
(3,476) |
||||||
Flow-through/permanent |
||||||||||||
differences |
1,090 |
(10,625) |
(2,012) |
(1,112) |
(625) |
(420) |
||||||
Benefit of Entergy Corp. expenses |
(1,145) |
(888) |
- |
- |
- |
(3,408) |
||||||
Other - net |
364 |
(821) |
1,122 |
(645) |
79 |
207 |
||||||
Total income taxes |
$105,296 |
$24,249 |
$97,408 |
$34,431 |
$5,875 |
$75,845 |
||||||
Effective Income Tax Rate |
45.5% |
27.5% |
40.0% |
33.9% |
42.8% |
41.7% |
Significant components of net deferred and long-term accrued tax liabilities as of December 31, 2005 and 2004 are as follows:
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
2005 |
Arkansas |
Gulf States |
Louisiana |
Mississippi |
New Orleans |
Energy |
||||||
(In Thousands) |
||||||||||||
Deferred and Long-term Accrued Tax Liabilities: |
||||||||||||
Net regulatory assets/(liabilities) |
($86,344) |
($491,661) |
($140,463) |
($21,800) |
$50,855 |
($214,474) |
||||||
Plant-related basis differences - net |
(1,277,810) |
(1,716,213) |
(1,094,333) |
(416,728) |
(183,111) |
(514,130) |
||||||
Power purchase agreements |
(4,075) |
(1,141) |
(964,086) |
(75) |
- |
- |
||||||
Rate refunds |
(40,429) |
- |
(23,186) |
(49,336) |
(14,448) |
- |
||||||
Deferred fuel |
(80,109) |
(128,565) |
(2,139) |
(29,978) |
(12,881) |
(6,885) |
||||||
Other reserves |
- |
(10,442) |
- |
(27,457) |
(40,477) |
774 |
||||||
Other |
(70,412) |
(3,945) |
(165,847) |
(15,975) |
(3,168) |
(14,275) |
||||||
Total |
(1,559,179) |
(2,351,967) |
(2,390,054) |
(561,349) |
(203,230) |
(748,990) |
||||||
Deferred Tax Assets: |
||||||||||||
Accumulated deferred investment |
||||||||||||
tax credit |
25,108 |
32,525 |
35,569 |
4,727 |
1,374 |
27,592 |
||||||
Sale and leaseback |
- |
- |
89,140 |
- |
- |
149,417 |
||||||
Purchased power agreements |
- |
- |
- |
- |
- |
100,909 |
||||||
NOL carryforward |
311,609 |
418,903 |
162,393 |
54,096 |
66,267 |
|
- |
|||||
Unbilled/Deferred revenues |
(1,454) |
24,043 |
- |
1,212 |
- |
- |
||||||
Pension-related items |
321 |
14,661 |
19,686 |
(4,114) |
5,698 |
6,745 |
||||||
Reserve for regulatory adjustments |
- |
120,792 |
- |
- |
- |
- |
||||||
Rate refund |
- |
6,530 |
- |
- |
- |
170,222 |
||||||
Customer deposits |
30,882 |
23,189 |
16,151 |
- |
120 |
- |
||||||
Nuclear decommissioning |
12,070 |
- |
2,833 |
- |
- |
3,671 |
||||||
Other |
18,745 |
20,238 |
13,083 |
338 |
193 |
15,843 |
||||||
Total |
397,281 |
660,881 |
338,855 |
56,259 |
73,652 |
474,399 |
||||||
Net deferred tax liability |
($1,161,898) |
($1,691,086) |
($2,051,199) |
($505,090) |
($129,578) |
($274,591) |
||||||
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
2004 |
Arkansas |
Gulf States |
Louisiana |
Mississippi |
New Orleans |
Energy |
||||||
(In Thousands) |
||||||||||||
Deferred and Long-term Accrued Tax Liabilities: |
||||||||||||
Net regulatory assets/(liabilities) |
($128,594) |
($479,158) |
($169,675) |
($22,864) |
$44,867 |
($223,391) |
||||||
Plant-related basis differences - net |
(1,237,303) |
(1,388,391) |
(921,976) |
(389,558) |
(103,733) |
(471,026) |
||||||
Power purchase agreements |
- |
- |
(971,676) |
- |
- |
- |
||||||
Rate refunds |
(39,163) |
- |
(17,736) |
(49,124) |
(14,375) |
- |
||||||
Deferred fuel |
(2,899) |
(36,017) |
(1,286) |
(6,424) |
(3,873) |
- |
||||||
Other reserves |
2,686 |
(33,916) |
27,421 |
5,856 |
(323) |
(80,597) |
||||||
Other |
(80,980) |
(20,781) |
(68,381) |
(16,516) |
(2,982) |
(11,851) |
||||||
Total |
(1,486,253) |
(1,958,263) |
(2,123,309) |
(478,630) |
(80,419) |
(786,865) |
||||||
Deferred Tax Assets: |
||||||||||||
Accumulated deferred investment |
||||||||||||
tax credit |
26,936 |
34,359 |
36,989 |
5,235 |
1,538 |
28,922 |
||||||
Sale and leaseback |
- |
- |
82,410 |
- |
- |
144,745 |
||||||
NOL carryforward |
300,249 |
164,749 |
164,840 |
34,642 |
18,973 |
- |
||||||
Unbilled/Deferred revenues |
- |
17,001 |
- |
10,193 |
- |
- |
||||||
Pension-related items |
- |
14,499 |
13,039 |
- |
10,656 |
6,737 |
||||||
Reserve for regulatory adjustments |
- |
131,112 |
- |
- |
- |
- |
||||||
Rate refund |
- |
32,932 |
- |
- |
- |
170,222 |
||||||
Customer deposits |
40,880 |
33,425 |
17,479 |
15,777 |
91 |
- |
||||||
Nuclear decommissioning |
12,070 |
- |
2,833 |
- |
- |
- |
||||||
Other |
11,801 |
10,721 |
13,021 |
2,386 |
193 |
11,296 |
||||||
Total |
391,936 |
438,798 |
330,611 |
68,233 |
31,451 |
361,922 |
||||||
Net deferred tax liability |
($1,094,317) |
($1,519,465) |
($1,792,698) |
($410,397) |
($48,968) |
($424,943) |
||||||
As of December 31, 2005, estimated federal net operating loss carryforwards were $751.5 million for Entergy Arkansas, $1.1 billion for Entergy Gulf States, $85.4 million for Entergy Louisiana, $168.3 million for Entergy Mississippi, and $151.4 million for Entergy New Orleans, primarily resulting from a change in tax accounting method relating to the calculation of cost of goods sold and losses due to Hurricanes Katrina and Rita. The tax accounting method change produces temporary book tax differences, which will reverse in the future. If the federal net operating loss carryforwards are not utilized, they will expire in the years 2023 through 2025.
As of December 31, 2005, estimated state net operating loss carryforwards were and $920.9 million for Entergy Arkansas, $822.5 million for Entergy Gulf States, $2.6 billion for Entergy Louisiana, and $337.4 million for Entergy New Orleans. If the state net operating loss carryforwards are not utilized, they will expire in the years 2008 through 2010 for Entergy Arkansas, 2018 through 2020 for Entergy Gulf States, 2016 through 2020 for Entergy Louisiana, and 2018 through 2020 for Entergy New Orleans.
Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy have recorded receivables of approximately $20 million, $167 million, $54 million, $59 million and $1 million, respectively, in the "Prepayments and other" line on the balance sheet as of December 31, 2005 for anticipated income tax refunds from prior tax years under the special provisions of the Gulf Opportunity Zone Act of 2005 and the Energy Policy Act of 2005.
Income Tax Audits
Entergy is currently under audit by the IRS with respect to tax returns for tax periods subsequent to 1995 and through 2003, and is subject to audit by the IRS and other taxing authorities for subsequent tax periods. The amount and timing of any tax assessments resulting from these audits are uncertain, and could have a material effect on Entergy's financial position and results of operations. Entergy believes that the contingency provisions established in its financial statements will sufficiently cover the liabilities that are reasonably estimable associated with tax matters. Certain material audit matters as to which management believes there is a reasonable possibility of a future tax payment are discussed below.
Depreciable Property Lives
In October 2005, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi Entergy New Orleans, and System Energy concluded settlement discussions with IRS Appeals related to the 1996 - 1998 audit cycle. The most significant issue settled involved the changes in tax depreciation methods with respect to certain types of depreciable property. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans partially conceded depreciation associated with assets other than street lighting and intend to pursue the street lighting depreciation in litigation. Entergy Gulf States was not part of the settlement and did not change its accounting method for these certain assets until 1999. The total cash concession related to these deductions for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy is $56 million plus interest of $23 million. The effect of a similar settlement by Entergy Gulf States would result in a cash tax exposu re of approximately $25 million plus interest of $8 million.
Because this issue relates to the timing of when depreciation expense is deducted, the conceded amount for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, or any future conceded amounts by Entergy Gulf States will be recovered in future periods. Entergy believes that the contingency provision established in its financial statements sufficiently covers the risk associated with this item.
Mark to Market of Certain Power Contracts
In 2001, Entergy Louisiana changed its method of accounting for income tax purposes related to its wholesale electric power contracts. The most significant of these is the contract to purchase power from the Vidalia hydroelectric project. On audit of Entergy Louisiana's 2001 tax return, the IRS made an adjustment reducing the amount of the deduction associated with this method change. The adjustment had no material impact on Entergy Louisiana's earnings and required no additional cash payment of 2001 income tax. The Vidalia contract method change has resulted in estimated cumulative cash flow benefits of approximately $664 million through December 31, 2005. This benefit could reverse in the years 2006 through 2031 depending on several variables, including the price of power. The tax accounting election has had no effect on book income tax expense.
NOTE 4. LINES OF CREDIT AND SHORT-TERM BORROWINGS (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The short-term borrowings of the domestic utility companies (other than Entergy New Orleans) and System Energy are limited to amounts authorized by the FERC. The current FERC-authorized limits are effective through March 31, 2008. In addition to borrowings from commercial banks, these companies are authorized under a FERC order to borrow from the Entergy System money pool The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the FERC authorized limits.
The following are the FERC-authorized limits for short-term borrowings effective February 8, 2006 and the outstanding short-term borrowings from the money pool for the domestic utility companies (other than Entergy New Orleans) and System Energy as of December 31, 2005:
Authorized |
Borrowings |
||
(In Millions) |
|||
Entergy Arkansas |
$250 |
$27.3 |
|
Entergy Gulf States |
$350 |
- |
|
Entergy Louisiana |
$250 |
$68.7 |
|
Entergy Mississippi |
$175 |
$84.1 |
|
System Energy |
$200 |
- |
Under a savings provision in PUHCA 2005, which repealed PUHCA 1935, Entergy New Orleans may continue to be a participant in the money pool to the extent authorized by its SEC PUHCA 1935 order. However, Entergy New Orleans has not, and does not expect to make, any additional money pool borrowings while it is in bankruptcy proceedings. Entergy New Orleans had $35.6 million in borrowings outstanding from the money pool as of its bankruptcy filing date, September 23, 2005. The money pool borrowings reflected on Entergy New Orleans' Balance Sheet as of December 31, 2005 are classified as a pre-petition obligation subject to compromise.
In 2005, the domestic utility companies and System Energy reclassified their treatment of money pool activity in their cash flow statements. Changes in receivables from the money pool are now classified as investing activities, and changes in payables to the money pool are now classified as financing activities. Previously, the domestic utility companies and System Energy had classified changes in receivables from the money pool and payables to the money pool as changes in working capital balances. The 2004 and 2003 money pool activity reported in the cash flow statements was reclassified to conform to the present classification.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each have 364-day credit facilities available as follows:
|
|
Amount of |
Amount Drawn as of |
|||
Entergy Arkansas |
April 2006 |
$85 million (a) |
- |
|||
Entergy Louisiana |
April 2006 |
$85 million (a) |
$40 million |
|||
Entergy Louisiana |
May 2006 |
$15 million (b) |
||||
Entergy Mississippi |
May 2006 |
$25 million |
- |
|||
Entergy New Orleans |
May 2006 |
$15 million (b) |
$15 million |
(a) |
The combined amount borrowed by Entergy Arkansas and Entergy Louisiana under these facilities at any one time cannot exceed $85 million. Entergy Louisiana granted a security interest in its receivables to secure its $85 million facility. |
(b) |
The combined amount borrowed by Entergy Louisiana and Entergy New Orleans under these facilities at any one time cannot exceed $15 million. In July 2005, Entergy New Orleans granted the lender a security interest in its customer accounts receivables to secure its borrowings under its facility. |
The 364-day credit facilities have variable interest rates and the average commitment fee is 0.13%. The $85 million Entergy Arkansas and Entergy Louisiana credit facilities each requires the respective company to maintain total shareholders' equity of at least 25% of its total assets.
Entergy New Orleans Debtor-in-Possession Credit Agreement
On September 26, 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility to provide funding to Entergy New Orleans during its business restoration efforts. On December 9, 2005, the bankruptcy court issued its final order approving the DIP Credit Agreement. The indenture trustee of Entergy New Orleans' first mortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee filing its notice of appeal, Entergy New Orleans, Entergy Corporation, and the indenture trustee filed with the bankruptcy court a motion to approve a settlement among the parties. The settlement would result in the dismissal of the indenture trustee's appeal. The settlement is set for hearing in the bankruptcy court on March 22, 2006.
The credit facility provides for up to $200 million in loans. These funds were requested to enable Entergy New Orleans to meet its liquidity needs, including employee wages and benefits and payments under power purchase and gas supply agreements, and to continue its efforts to repair and restore the facilities needed to serve its electric and gas customers. The facility provides the ability for Entergy New Orleans to request funding from Entergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. As of December 31, 2005, Entergy New Orleans had $90 million of outstanding borrowings under the DIP credit agreement. Management currently expects the bankruptcy court-authorized funding level to be sufficient to fund Entergy New Orleans' expected level of operations through 2006.
Borrowings under the DIP credit agreement are due in full, and the agreement will terminate, at the earliest of (i) August 23, 2006, or such later date as Entergy Corporation shall agree to in its sole discretion, (ii) the acceleration of the loans and the termination of the DIP credit agreement in accordance with its terms, (iii) the date of the closing of a sale of all or substantially all of Entergy New Orleans' assets pursuant to section 363 of the United States Bankruptcy Code or a confirmed plan of reorganization, or (iv) the effective date of a plan of reorganization in Entergy New Orleans' bankruptcy case.
As security for Entergy Corporation as the lender, the terms of the December 9, 2005 bankruptcy court order provide that all borrowings by Entergy New Orleans under the DIP Credit Agreement are: (i) entitled to superpriority administrative claim status pursuant to section 364(c)(1) of the Bankruptcy Code; (ii) secured by a perfected first priority lien on all property of Entergy New Orleans pursuant to sections 364(c)(2) and 364(d) of the Bankruptcy Code, except on any property of Entergy New Orleans subject to valid, perfected, and non-avoidable liens of the lender on Entergy New Orleans' $15 million credit facility; and (iii) secured by a perfected junior lien pursuant to section 364(c)(3) of the Bankruptcy Code on all property of Entergy New Orleans subject to valid, perfected, and non-avoidable liens in favor of the lender on Entergy New Orleans' $15 million credit facility that existed as of the date Entergy New Orleans filed its bankruptcy petition.
The lien granted by the bankruptcy court under sections 364(c)(2) and 364(d) primes the liens that secure Entergy New Orleans' obligations under its mortgage bond indenture that existed as of the date Entergy New Orleans filed its bankruptcy petition. To secure Entergy New Orleans' obligations under its mortgage bond indenture, the bankruptcy court's December 9, 2005 order grants in favor of the bond trustee, for the benefit of itself and the bondholders, a lien on all Entergy New Orleans property that secures its obligations under the DIP Credit Agreement. The lien in favor of the bond trustee is senior to all other liens except for the liens in favor of Hibernia National Bank and Entergy Corporation.
The interest rate on borrowings under the DIP credit agreement will be the average interest rate of borrowings outstanding under Entergy Corporation's $2 billion revolving credit facility, which was approximately 4.7% per annum at December 31, 2005.
Events of default under the DIP credit agreement include: failure to make payment of any installment of principal or interest when due and payable; the occurrence of a change of control of Entergy New Orleans; failure by either Entergy New Orleans or Entergy Corporation to receive other necessary governmental approvals and consents; the occurrence of an event having a materially adverse effect on Entergy New Orleans or its prospects; and customary bankruptcy-related defaults, including, without limitation, appointment of a trustee, "responsible person," or examiner with expanded powers, conversion of Entergy New Orleans' chapter 11 case to a case under chapter 7 of the Bankruptcy Code, and the interim or final orders approving the DIP Credit Agreement being stayed or modified or ceasing to be in full force and effect.
NOTE 5. LONG - TERM DEBT (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Long-term debt as of December 31, 2005 and 2004 consisted of:
2005 |
2004 |
||
(In Thousands) |
|||
Entergy Arkansas | |||
Mortgage Bonds: | |||
6.125% Series due July 2005 |
$- |
$100,000 |
|
4.50% Series due June 2010 |
100,000 |
- |
|
5.4% Series due May 2018 |
150,000 |
150,000 |
|
5.0% Series due July 2018 |
115,000 |
115,000 |
|
7.0% Series due October 2023 |
- |
175,000 |
|
5.66% Series due February 2025 |
175,000 |
- |
|
6.7% Series due April 2032 |
100,000 |
100,000 |
|
6.0% Series due November 2032 |
100,000 |
100,000 |
|
5.9% Series due June 2033 |
100,000 |
100,000 |
|
6.38% Series due November 2034 |
60,000 |
60,000 |
|
Total mortgage bonds |
900,000 |
900,000 |
|
Governmental Bonds (a): | |||
6.3% Series due 2016, Pope County (f) |
19,500 |
19,500 |
|
5.6% Series due 2017, Jefferson County |
45,500 |
45,500 |
|
6.3% Series due 2018, Jefferson County (f) |
9,200 |
9,200 |
|
6.3% Series due 2020, Pope County |
120,000 |
120,000 |
|
6.25% Series due 2021, Independence County (f) |
- |
45,000 |
|
5.0% Series due 2021, Independence County (f) |
45,000 |
- |
|
5.05% Series due 2028, Pope County (b) |
- |
47,000 |
|
Total governmental bonds |
239,200 |
286,200 |
|
Other Long-Term Debt | |||
Long-term DOE Obligation (c) |
161,048 |
156,332 |
|
Unamortized Premium and Discount - Net |
(2,010) |
(4,390) |
|
Other |
- |
621 |
|
Total Long-Term Debt |
1,298,238 |
1,338,763 |
|
Less Amount Due Within One Year |
- |
147,000 |
|
Long-Term Debt Excluding Amount Due Within One Year |
$1,298,238 |
$1,191,763 |
|
Fair Value of Long-Term Debt (d) |
$1,141,332 |
$1,224,942 |
|
2005 |
2004 |
||
(In Thousands) |
|||
Entergy Gulf States | |||
Mortgage Bonds: | |||
6.77% Series due August 2005 |
$- |
$98,000 |
|
3.6% Series due June 2008 |
325,000 |
325,000 |
|
Libor + 0.75% Series due December 2008 |
350,000 |
- |
|
Libor + 0.4% Series due December 2009 |
225,000 |
225,000 |
|
5.12 % Series due August 2010 |
100,000 |
- |
|
4.875% Series due November 2011 |
200,000 |
200,000 |
|
6.0% Series due December 2012 |
140,000 |
140,000 |
|
5.6% Series due December 2014 |
50,000 |
50,000 |
|
5.70% Series due June 2015 |
200,000 |
- |
|
5.25% Series due August 2015 |
200,000 |
200,000 |
|
6.2% Series due July 2033 |
240,000 |
240,000 |
|
6.18% Series due March 2035 |
85,000 |
- |
|
Total mortgage bonds |
2,115,000 |
1,478,000 |
|
Governmental Bonds (a): | |||
5.45% Series due 2010, Calcasieu Parish |
22,095 |
22,095 |
|
6.75% Series due 2012, Calcasieu Parish |
48,285 |
48,285 |
|
6.7% Series due 2013, Pointe Coupee Parish |
17,450 |
17,450 |
|
5.7% Series due 2014, Iberville Parish |
21,600 |
21,600 |
|
7.7% Series due 2014, West Feliciana Parish |
- |
94,000 |
|
5.8% Series due 2015, West Feliciana Parish |
28,400 |
28,400 |
|
7.0% Series due 2015, West Feliciana Parish |
39,000 |
39,000 |
|
7.5% Series due 2015, West Feliciana Parish |
- |
41,600 |
|
9.0% Series due 2015, West Feliciana Parish |
- |
45,000 |
|
5.8% Series due 2016, West Feliciana Parish |
20,000 |
20,000 |
|
6.6% Series due 2028, West Feliciana Parish |
40,000 |
40,000 |
|
Total governmental bonds |
236,830 |
417,430 |
|
Other Long-Term Debt | |||
8.75% Junior Subordinated Deferrable Interest Debentures |
- |
87,629 |
|
Unamortized Premium and Discount - Net |
(2,516) |
(2,397) |
|
Other |
8,816 |
8,816 |
|
Total Long-Term Debt |
2,358,130 |
1,989,478 |
|
Less Amount Due Within One Year |
- |
98,000 |
|
Long-Term Debt Excluding Amount Due Within One Year |
$2,358,130 |
$1,891,478 |
|
Fair Value of Long-Term Debt (d) |
$2,364,695 |
$1,999,249 |
|
2005 |
2004 |
||
(In Thousands) |
|||
Entergy Louisiana | |||
Mortgage Bonds: | |||
4.67% Series due June 2010 |
$55,000 |
$- |
|
5.83% Series due November 2010 |
150,000 |
- |
|
5.09% Series due November 2014 |
115,000 |
115,000 |
|
5.56% Series due September 2015 |
100,000 |
- |
|
5.5% Series due April 2019 |
100,000 |
100,000 |
|
7.6% Series due April 2032 |
150,000 |
150,000 |
|
6.4% Series due October 2034 |
70,000 |
70,000 |
|
6.3% Series due September 2035 |
100,000 |
- |
|
Total mortgage bonds |
840,000 |
435,000 |
|
Governmental Bonds (a): | |||
7.5% Series due 2021, St. Charles Parish |
- |
50,000 |
|
7.0% Series due 2022, St. Charles Parish |
- |
24,000 |
|
7.05% Series due 2022, St. Charles Parish |
- |
20,000 |
|
5.95% Series due 2023, St. Charles Parish (f) |
25,000 |
25,000 |
|
6.2% Series due 2023, St. Charles Parish |
- |
33,000 |
|
6.875% Series due 2024, St. Charles Parish |
- |
20,400 |
|
6.375% Series due 2025, St. Charles Parish |
- |
16,770 |
|
Auction Rate due 2030, St. Charles Parish (f) |
60,000 |
60,000 |
|
4.9% Series due 2030, St. Charles Parish (e) |
- |
55,000 |
|
Total governmental bonds |
85,000 |
304,170 |
|
Other Long-Term Debt: | |||
Waterford 3 Lease Obligation 7.45% (Note 9) |
247,725 |
247,725 |
|
Unamortized Premium and Discount - Net |
(325) |
(1,200) |
|
Total Long-Term Debt |
1,172,400 |
985,695 |
|
Less Amount Due Within One Year |
- |
55,000 |
|
Long-Term Debt Excluding Amount Due Within One Year |
$1,172,400 |
$930,695 |
|
|
|
||
Fair Value of Long-Term Debt (d) |
$934,821 |
$762,782 |
2005 |
2004 |
||
(In Thousands) |
|||
Entergy Mississippi | |||
Mortgage Bonds: | |||
4.35% Series due April 2008 |
$100,000 |
$100,000 |
|
4.65% Series due May 2011 |
80,000 |
80,000 |
|
5.15% Series due February 2013 |
100,000 |
100,000 |
|
4.95% Series due June 2018 |
95,000 |
95,000 |
|
6.0% Series due November 2032 |
75,000 |
75,000 |
|
7.25% Series due December 2032 |
100,000 |
100,000 |
|
6.25% Series due April 2034 |
100,000 |
100,000 |
|
Total mortgage bonds |
650,000 |
650,000 |
|
Governmental Bonds (a): | |||
4.60% Series due 2022, Mississippi Business Finance Corp.(f) |
16,030 |
16,030 |
|
Auction Rate due 2022, Independence County (f) |
30,000 |
30,000 |
|
Total governmental bonds |
46,030 |
46,030 |
|
Other Long-Term Debt: | |||
Unamortized Premium and Discount - Net |
(884) |
(957) |
|
Total Long-Term Debt |
$695,146 |
$695,073 |
|
Fair Value of Long-Term Debt (d) |
$697,772 |
$716,201 |
2005 |
2004 |
||
(In Thousands) |
|||
Entergy New Orleans | |||
Mortgage Bonds(g): | |||
8.125% Series due July 2005 |
$- |
$30,000 |
|
3.875% Series due August 2008 |
30,000 |
30,000 |
|
4.98% Series due July 2010 |
30,000 |
- |
|
5.25% Series due August 2013 |
70,000 |
70,000 |
|
6.75% Series due October 2017 |
25,000 |
25,000 |
|
5.6% Series due September 2024 |
34,975 |
35,000 |
|
5.65% Series due September 2029 |
39,960 |
40,000 |
|
Total mortgage bonds |
229,935 |
230,000 |
|
Other Long-Term Debt: | |||
Unamortized Premium and Discount - Net |
(76) |
(98) |
|
Total Long-Term Debt (h) |
229,859 |
229,902 |
|
Less Amount Due Within One Year |
- |
30,000 |
|
Long-Term Debt Excluding Amount Due Within One Year |
$229,859 |
$199,902 |
|
|
|||
Fair Value of Long-Term Debt (d) |
$199,100 |
$231,957 |
|
2005 |
2004 |
|
(In Thousands) |
|||
System Energy | |||
Mortgage Bonds: | |||
4.875% Series due October 2007 |
$70,000 |
$70,000 |
|
Total mortgage bonds |
70,000 |
70,000 |
|
Governmental Bonds (a): | |||
5.875% Series due 2022, Mississippi Business Finance Corp. |
216,000 |
216,000 |
|
5.9% Series due 2022, Mississippi Business Finance Corp. |
102,975 |
102,975 |
|
6.2% Series due 2026, Claiborne County |
90,000 |
90,000 |
|
Total governmental bonds |
408,975 |
408,975 |
|
Other Long-Term Debt: | |||
Grand Gulf Lease Obligation 5.02% (Note 9) |
364,806 |
397,119 |
|
Unamortized Premium and Discount - Net |
(1,150) |
(1,235) |
|
Total Long-Term Debt |
842,631 |
874,859 |
|
Less Amount Due Within One Year |
22,989 |
25,266 |
|
Long-Term Debt Excluding Amount Due Within One Year |
$819,642 |
$849,593 |
|
|
|
||
Fair Value of Long-Term Debt (d) |
$474,508 |
$470,187 |
(a) |
Consists of pollution control revenue bonds and environmental revenue bonds. |
(b) |
The bonds had a mandatory tender date of September 1, 2005. Entergy Arkansas purchased the bonds from the holders, pursuant to the mandatory tender provision, and has not remarketed the bonds at this time. |
(c) |
Pursuant to the Nuclear Waste Policy Act of 1982, Entergy's nuclear owner/licensee subsidiaries have contracts with the DOE for spent nuclear fuel disposal service. The contracts include a one-time fee for generation prior to April 7, 1983. Entergy Arkansas is the only Entergy company that generated electric power with nuclear fuel prior to that date and includes the one-time fee, plus accrued interest, in long-term debt. |
(d) |
The fair value excludes lease obligations and long-term DOE obligations, and includes debt due within one year. It is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. |
(e) |
The bonds had a mandatory tender date of June 1, 2005. Entergy Louisiana purchased the bonds from the holders, pursuant to the mandatory tender provision, and has not remarketed the bonds at this time. |
(f) |
The bonds are secured by a series of collateral first mortgage bonds. |
(g) |
Under a settlement agreement currently pending approval of the bankruptcy court, the holders have agreed to forego the accrual of interest on the bonds for one year beginning September 23, 2005. |
(h) |
The 2005 long-term debt is classified as Liabilities Subject to Compromise on the Balance Sheet. |
The annual long-term debt maturities (excluding lease obligations) for debt outstanding as of December 31, 2005, for the next five years are as follows:
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
|||||||
(In Thousands) |
||||||||||||
2006 |
- |
- |
- |
- |
- |
- |
||||||
2007 |
- |
- |
- |
- |
- |
$70,000 |
||||||
2008 |
- |
$675,000 |
- |
$100,000 |
$30,000 |
- |
||||||
2009 |
- |
$225,000 |
- |
- |
- |
- |
||||||
2010 |
$100,000 |
$122,095 |
$205,000 |
- |
$30,000 |
- |
Prior to February 8, 2006, the long-term securities issuances of Entergy Gulf States, Entergy Louisiana, LLC (as well as, prior to December 31, 2005, Entergy Louisiana, Inc., the predecessor to Entergy Louisiana, LLC's SEC financing authority), Entergy Mississippi and System Energy were authorized by the SEC under PUHCA 1935. Effective on that date, the FERC has jurisdiction over these issuances. Entergy Gulf States and Entergy Louisiana, LLC have obtained FERC authorization for their long-term financing. The long-term securities issuances of Entergy Arkansas are limited to amounts authorized by the APSC.
Under a savings provision contained in PUHCA 2005, which repealed PUHCA 1935, Entergy Mississippi and System Energy can each rely, after the repeal, on the long-term securities issuance authority in its SEC PUHCA 1935 order or orders unless superceded by FERC authorization. Under its SEC order, Entergy Mississippi cannot incur additional indebtedness or issue other securities unless (a) the issuer and Entergy Corporation maintain a common equity ratio of at least 30% and (b) the security to be issued (if rated) and all its outstanding securities of the issuer, as well as all outstanding securities of Entergy Corporation, that are rated, are rated investment grade.
Junior Subordinated Deferrable Interest Debentures and Implementation of FIN 46 (Entergy Gulf States)
Entergy implemented FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" effective December 31, 2003. FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among their investors. Variable interest entities (VIEs), generally, are entities that do not have sufficient equity to permit the entity to finance its operations without additional financial support from its equity interest holders and/or the group of equity interest holders are collectively not able to exercise control over the entity. The primary beneficiary is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both as a result of holding the variable interest. A company may have an interest in a VIE through ownership or other contractual rights or obligations.
Entergy Gulf States Capital I (Trust) was established as a financing subsidiary of Entergy Gulf States, (the parent company or companies, collectively) for the purposes of issuing common and preferred securities. The Trust issued Cumulative Quarterly Income Preferred Securities (Preferred Securities) to the public and issued common securities to its parent companies. Proceeds from such issues were used to purchase junior subordinated deferrable interest debentures (Debentures) from the parent company. The Debentures held by the Trust were its only assets. The Trust used interest payments received on the Debentures owned by it to make cash distributions on the Preferred Securities and common securities. The parent company fully and unconditionally guaranteed payment of distributions on the Preferred Securities issued by the Trust. Prior to the application of FIN 46, the parent company consolidated its interest in its Trust. Because the parent company's share of expected losses of its Trust is limited to its investment in its Trust, the parent company is not considered the primary beneficiary and therefore de-consolidated its interest in the Trust upon application of FIN 46 with no significant impact to the financial statements. In 2004, the parent company's investment in the Trust and the Debentures issued by the parent company is included in Other Property and Investments and Long-Term Debt, respectively. In 2005, Entergy Gulf States redeemed the Debentures and the Trust redeemed the Preferred Securities.
Tax Exempt Bond Audit (Entergy Louisiana)
The Internal Revenue Service (IRS) is auditing certain Tax Exempt Bonds (Bonds) issued by St. Charles Parish, State of Louisiana (the Issuer). The Bonds were issued to finance previously unfinanced acquisition costs expended by Entergy Louisiana to acquire certain radioactive solid waste disposal facilities (the Facilities) at the Waterford Steam Electric Generating Station. In March and April 2005, the IRS issued proposed adverse determinations that the Issuer's 7.0% Series bonds due 2022, 7.5% Series bonds due 2021, and 7.05% Series bonds due 2022 are not tax exempt. The stated basis for these determinations was that radioactive waste did not constitute "solid waste" within the provisions of the Internal Revenue Code and therefore the Facilities did not qualify as solid waste disposal facilities. The Issuer has requested administrative appeals of the proposed adverse determinations with respect to the Bonds to the IRS Office of Appeals. The Issuer and Entergy Louisiana intend to continue to contest vigorously these matters. The three series of Bonds are the only series of bonds issued by the Issuer for the benefit of Entergy Louisiana that are the subject of audits by the IRS.
NOTE 6. PREFERRED STOCK (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
The number of shares authorized and outstanding and dollar value of preferred stock for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans as of December 31, 2005 and 2004 are presented below. Only the two Entergy Gulf States series "with sinking fund" contain mandatory redemption requirements. All other series of the U.S. Utility are redeemable at Entergy's option at the call prices presented. Dividends paid on all of Entergy's preferred stock series are eligible for the dividends received deduction.
The dividends received deduction is limited by Internal Revenue Code section 244 for the following preferred stock series: Entergy Arkansas 4.72%, Entergy Gulf States 4.40%, Entergy Louisiana Holdings 4.96%, Entergy Mississippi 4.56%, and Entergy New Orleans 4.75%.
Shares |
|
Call Price Per |
|||||||
2005 |
2004 |
2005 |
2004 |
2005 |
|||||
Entergy Arkansas Preferred Stock | |||||||||
Without sinking fund: | |||||||||
Cumulative, $100 par value: | |||||||||
4.32% Series |
70,000 |
70,000 |
$7,000 |
$7,000 |
$103.65 |
||||
4.72% Series |
93,500 |
93,500 |
9,350 |
9,350 |
$107.00 |
||||
4.56% Series |
75,000 |
75,000 |
7,500 |
7,500 |
$102.83 |
||||
4.56% 1965 Series |
75,000 |
75,000 |
7,500 |
7,500 |
$102.50 |
||||
6.08% Series |
100,000 |
100,000 |
10,000 |
10,000 |
$102.83 |
||||
7.32% Series |
100,000 |
100,000 |
10,000 |
10,000 |
$103.17 |
||||
7.80% Series |
150,000 |
150,000 |
15,000 |
15,000 |
$103.25 |
||||
7.40% Series |
200,000 |
200,000 |
20,000 |
20,000 |
$102.80 |
||||
7.88% Series |
150,000 |
150,000 |
15,000 |
15,000 |
$103.00 |
||||
Cumulative, $0.01 par value: | |||||||||
$1.96 Series (a) |
600,000 |
600,000 |
15,000 |
15,000 |
$25.00 |
||||
Total without sinking fund |
1,613,500 |
1,613,500 |
$116,350 |
$116,350 |
Shares |
|
Call Price Per |
|||||||
2005 |
2004 |
2005 |
2004 |
2005 |
|||||
Entergy Gulf States Preferred Stock | |||||||||
Preferred Stock | |||||||||
Authorized 6,000,000 shares, $100 par value, cumulative |
|||||||||
Without sinking fund: | |||||||||
4.40% Series |
51,173 |
51,173 |
$5,117 |
$5,117 |
$108.00 |
||||
4.50% Series |
5,830 |
5,830 |
583 |
583 |
$105.00 |
||||
4.40% 1949 Series |
1,655 |
1,655 |
166 |
166 |
$103.00 |
||||
4.20% Series |
9,745 |
9,745 |
975 |
975 |
$102.82 |
||||
4.44% Series |
14,804 |
14,804 |
1,480 |
1,480 |
$103.75 |
||||
5.00% Series |
10,993 |
10,993 |
1,099 |
1,099 |
$104.25 |
||||
5.08% Series |
26,845 |
26,845 |
2,685 |
2,685 |
$104.63 |
||||
4.52% Series |
10,564 |
10,564 |
1,056 |
1,056 |
$103.57 |
||||
6.08% Series |
32,829 |
32,829 |
3,283 |
3,283 |
$103.34 |
||||
7.56% Series |
308,830 |
308,830 |
30,883 |
30,883 |
$101.80 |
||||
Total without sinking fund |
473,268 |
473,268 |
$47,327 |
$47,327 |
|||||
With sinking fund: | |||||||||
Adjustable Rate-A, 7.0% (b) |
72,000 |
84,000 |
$7,200 |
$8,400 |
$100.00 |
||||
Adjustable Rate-B, 7.0% (b) |
67,500 |
90,000 |
6,750 |
9,000 |
$100.00 |
||||
Total with sinking fund |
139,500 |
174,000 |
$13,950 |
$17,400 |
|||||
Fair Value of Preferred Stock
with Sinking Fund (c) |
|
|
Shares |
|
Call Price Per |
|||||||
2005 |
2004 |
2005 |
2004 |
2005 |
|||||
Entergy Louisiana Holdings Preferred Stock | |||||||||
Without sinking fund: | |||||||||
Cumulative, $100 par value: | |||||||||
4.96% Series |
60,000 |
60,000 |
$6,000 |
$6,000 |
$104.25 |
||||
4.16% Series |
70,000 |
70,000 |
7,000 |
7,000 |
$104.21 |
||||
4.44% Series |
70,000 |
70,000 |
7,000 |
7,000 |
$104.06 |
||||
5.16% Series |
75,000 |
75,000 |
7,500 |
7,500 |
$104.18 |
||||
5.40% Series |
80,000 |
80,000 |
8,000 |
8,000 |
$103.00 |
||||
6.44% Series |
80,000 |
80,000 |
8,000 |
8,000 |
$102.92 |
||||
7.84% Series |
100,000 |
100,000 |
10,000 |
10,000 |
$103.78 |
||||
7.36% Series |
100,000 |
100,000 |
10,000 |
10,000 |
$103.36 |
||||
Cumulative, $25 par value: | |||||||||
8.00% Series |
1,480,000 |
1,480,000 |
37,000 |
37,000 |
$25.00 |
||||
Total without sinking fund |
2,115,000 |
2,115,000 |
$100,500 |
$100,500 |
Shares |
|
Call Price Per |
|||||||
2005 |
2004 |
2005 |
2004 |
2005 |
|||||
Entergy Louisiana, LLC Preferred Stock | |||||||||
Without sinking fund: | |||||||||
Cumulative, $100 par value: | |||||||||
6.95% Series |
1,000,000 |
- |
$100,000 |
$- |
$- |
||||
Total without sinking fund |
1,000,000 |
- |
$100,000 |
$- |
|
Shares |
|
Call Price Per |
||||||
2005 |
2004 |
2005 |
2004 |
2005 |
|||||
Entergy Mississippi Preferred Stock | |||||||||
Without sinking fund: | |||||||||
Cumulative, $100 par value: | |||||||||
4.36% Series |
59,920 |
59,920 |
$5,992 |
$5,992 |
$103.88 |
||||
4.56% Series |
43,887 |
43,887 |
4,389 |
4,389 |
$107.00 |
||||
4.92% Series |
100,000 |
100,000 |
10,000 |
10,000 |
$102.88 |
||||
7.44% Series |
- |
100,000 |
- |
10,000 |
$- |
||||
8.36% Series |
- |
200,000 |
- |
20,000 |
$- |
||||
Cumulative, $25 par value | |||||||||
6.25% Series (d) |
1,200,000 |
- |
30,000 |
- |
$- |
||||
Total without sinking fund |
1,403,807 |
503,807 |
$50,381 |
$50,381 |
Shares |
|
Call Price Per |
|||||||
2005 |
2004 |
2005 |
2004 |
2005 |
|||||
Entergy New Orleans Preferred Stock | |||||||||
Without sinking fund: | |||||||||
Cumulative, $100 par value: | |||||||||
4.75% Series |
77,798 |
77,798 |
$7,780 |
$7,780 |
$105.00 |
||||
4.36% Series |
60,000 |
60,000 |
6,000 |
6,000 |
$104.58 |
||||
5.56% Series |
60,000 |
60,000 |
6,000 |
6,000 |
$102.59 |
||||
Total without sinking fund |
197,798 |
197,798 |
$19,780 |
$19,780 |
(a) |
The total dollar value represents the liquidation value of $25 per share. |
(b) |
Represents weighted-average annualized rates for 2005 and 2004. |
(c) |
Fair values were determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. There is an additional disclosure of fair value of financial instruments in Note 12 to the domestic utility companies and System Energy financial statements. |
(d) |
Series is non-callable until August 2010; thereafter callable at par. |
Entergy Gulf States' preferred stock with sinking fund retirements were 34,500 shares in 2005, 2004, and 2003. Entergy Gulf States has annual sinking fund requirements of $3.45 million through 2009 for its preferred stock outstanding. Entergy Gulf States has the annual non-cumulative option to redeem, at par, additional amounts of certain series of its outstanding preferred stock
.In June 2005, Entergy Mississippi issued 1,200,000 shares of $25 par value 6.25% Series Preferred Stock, all of which are outstanding as of December 31, 2005. The dividends are cumulative and payable quarterly beginning November 1, 2005. The preferred stock is redeemable on or after July 1, 2010, at Entergy Mississippi's option, at the call price of $25 per share. The proceeds from this issuance were used in the third quarter of 2005 to redeem all $20 million of Entergy Mississippi's $100 par value 8.36% Series Preferred Stock and all $10 million of Entergy Mississippi's $100 par value 7.44% Series Preferred Stock.
In December 2005, Entergy Louisiana, LLC issued 1,000,000 shares of $100 par value 6.95% Series Preferred Stock, all of which are outstanding as of December 31, 2005. The dividends are cumulative and payable quarterly beginning March 15, 2006. The preferred stock is redeemable on or after December 31, 2010, at Entergy Louisiana's option, at the call price of $100 per share. The proceeds from the issuance will be used to repay short-term borrowings.
Entergy New Orleans has 77,798 shares of $100 par value, 4-3/4 % series preferred stock ("4-3/4% Preferred") issued and outstanding. The 4-3/4% Preferred is non-voting, limited and preferred as to dividends, has a preference in liquidation over the common stock equal to its par value ($100), has redemption rights equal to 105% of its issue price and is not convertible into any other class of stock. The 4-3/4% Preferred is entitled to a quarterly dividend to be paid on the first day of January, April, July, and October. Due to its bankruptcy, Entergy New Orleans did not pay the preferred stock dividends due October 1, 2005 or January 1, 2006. If dividends with respect to the 4-3/4% Preferred are not paid by July 1, 2006, the holders of these shares will have the right to elect a majority of the Entergy New Orleans board of directors. If the 4-3/4% Preferred obtain the right to elect a majority of the Entergy New Orleans board of directors, Entergy New Orleans will no longer be a member of the Entergy Consolidated Tax Return Group. If Entergy New Orleans is not a member of the Entergy Consolidated Tax Return Group, Entergy New Orleans is not entitled to benefits under the Entergy Income Tax Allocation Agreement.
NOTE 7. COMMON EQUITY (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans
Dividend Restrictions
Provisions within the Articles of Incorporation or pertinent indentures and various other agreements relating to the long-term debt and preferred stock of the domestic utility companies and System Energy restrict the payment of cash dividends or other distributions on their common and preferred stock. As of December 31, 2005, Entergy Arkansas and Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of $396.4 million and $68.5 million, respectively.
The Federal Power Act restricts the ability of a public utility to pay dividends out of capital. As a result of its restructuring and the related accounting, Entergy Louisiana, LLC applied to the FERC for a declaratory order to pay dividends on its common and preferred membership interests from the following sources: (1) the amount of Entergy Louisiana, Inc.'s retained earnings immediately prior to its restructuring on December 31, 2005; (2) an amount in excess of the amount in (1) over a transition period not expected to last more than 3 years as long as Entergy Louisiana, LLC's proprietary capital ratio is, and will remain, above 30%; and (3) the amount of Entergy Louisiana, LLC's retained earnings after the restructuring. The FERC granted the declaratory order on January 23, 2006. Dividends paid by Entergy Louisiana, LLC on its common membership interests to Entergy Louisiana Holdings, Inc. may, in turn, be paid by Entergy Louisiana Holdings, Inc. to Entergy Corporation without the need for FERC approval. As a wholly-owned subsidiary, Entergy Louisiana Holdings, Inc. dividends its earnings to Entergy Corporation at a percentage determined monthly.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The domestic utility companies and System Energy are involved in a number of legal, tax, and regulatory proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of their business. While management is unable to predict the outcome of such proceedings, it is not expected that the ultimate resolution of these matters will have a material adverse effect on Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, Entergy Mississippi's, Entergy New Orleans', or System Energy's results of operations, cash flows, or financial condition.
Entergy New Orleans Bankruptcy
See Note 14 to the consolidated financial statements for information on the Entergy New Orleans bankruptcy proceeding.
Vidalia Purchased Power Agreement (Entergy Louisiana)
Entergy Louisiana has an agreement extending through the year 2031 to purchase energy generated by a hydroelectric facility known as the Vidalia project. Entergy Louisiana made payments under the contract of approximately $115.1 million in 2005, $147.7 million in 2004, and $112.6 million in 2003. If the maximum percentage (94%) of the energy is made available to Entergy Louisiana, current production projections would require estimated payments of approximately $130.4 million in 2006, and a total of $3.4 billion for the years 2007 through 2031. Entergy Louisiana currently recovers the costs of the purchased energy through its fuel adjustment clause. In an LPSC-approved settlement related to tax benefits from the tax treatment of the Vidalia contract, Entergy Louisiana agreed to credit rates by $11 million each year for up to ten years, beginning in October 2002. The provisions of the settlement also provide that the LPSC shall not recognize or use Entergy Louisiana's use of the cash benefits from the tax treatment in setting any of Entergy Louisiana's rates. Therefore, to the extent Entergy Louisiana's use of the proceeds would ordinarily have reduced its rate base, no change in rate base shall be reflected for ratemaking purposes.
System Fuels (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The domestic utility companies that are owners of System Fuels have made loans to System Fuels to finance its fuel procurement, delivery, and storage activities. The following loans outstanding to System Fuels as of December 31, 2005 mature in 2008:
|
|
Ownership |
|
Loan Outstanding |
|
|
|
|
|
Entergy Arkansas |
|
35% |
|
$11.0 million |
Entergy Louisiana |
|
33% |
|
$14.2 million |
Entergy Mississippi |
|
19% |
|
$5.5 million |
Entergy New Orleans |
|
13% |
|
$3.3 million |
Nuclear Insurance (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Third Party Liability Insurance
The Price-Anderson Act provides insurance for the public in the event of a nuclear power plant accident. The costs of this insurance are borne by the nuclear power industry. Originally passed by Congress in 1957 and most recently amended in 2005, the Price-Anderson Act requires nuclear power plants to show evidence of financial protection in the event of a nuclear accident. This protection must consist of two levels:
1. |
The primary level is private insurance underwritten by American Nuclear Insurers and provides liability insurance coverage of $300 million. If this amount is not sufficient to cover claims arising from the accident, the second level, Secondary Financial Protection, applies. An industry-wide aggregate limitation of $300 million exists for domestically-sponsored terrorist acts. There is no limitation for foreign-sponsored terrorist acts. |
2. |
Within the Secondary Financial Protection level, each nuclear plant must pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary level, up to a maximum of $100.6 million per reactor per incident. This consists of a $95.8 million maximum retrospective premium plus a five percent surcharge that may be applied, if needed, at a rate that is presently set at $15 million per year per nuclear power reactor. There are no domestically- or foreign-sponsored terrorism limitations. |
Currently, 104 nuclear reactors are participating in the Secondary Financial Protection program - 103 operating reactors and one under construction. The product of the maximum retrospective premium assessment to the nuclear power industry and the number of nuclear power reactors provides over $10 billion in insurance coverage to compensate the public in the event of a nuclear power reactor accident.
Entergy Arkansas has two licensed reactors and Entergy Gulf States, Entergy Louisiana, and System Energy each have one licensed reactor (10% of Grand Gulf is owned by a non-affiliated company (SMEPA), which would share on a pro-rata basis in any retrospective premium assessment under the Price-Anderson Act).
An additional but temporary contingent liability exists for all nuclear power reactor owners because of a previous Nuclear Worker Tort (long-term bodily injury caused by exposure to nuclear radiation while employed at a nuclear power plant) insurance program that was in place from 1988 to 1998. The maximum premium assessment exposure to each reactor is $3 million and will only be applied if such claims exceed the program's accumulated reserve funds. This contingent premium assessment feature will expire with the Nuclear Worker Tort program's expiration, which is scheduled for 2008.
Property Insurance
Entergy's nuclear owner/licensee subsidiaries are members of certain mutual insurance companies that provide property damage coverage, including decontamination and premature decommissioning expense, to the members' nuclear generating plants. These programs are underwritten by Nuclear Electric Insurance Limited (NEIL). As of December 31, 2005, the domestic utility companies and System Energy were insured against such losses per the following structures:
ANO 1 and 2, Grand Gulf, River Bend, and Waterford 3
Note: ANO 1 and 2 share in the Primary Layer with one policy in common.
In addition, Waterford 3 and Grand Gulf are also covered under NEIL's Accidental Outage Coverage program. This coverage provides certain fixed indemnities in the event of an unplanned outage that results from a covered NEIL property damage loss, subject to a deductible. The following summarizes this coverage as of December 31, 2005:
Waterford 3
Grand Gulf
Under the property damage and accidental outage insurance programs, Entergy's nuclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of December 31, 2005, the maximum amount of such possible assessments per occurrence were $16.1 million for Entergy Arkansas, $10.9 million for Entergy Gulf States, $13.3 million for Entergy Louisiana, $0.15 million for Entergy Mississippi, $0.15 million for Entergy New Orleans, and $11.9 million for System Energy.
Entergy maintains property insurance for its nuclear units in excess of the NRC's minimum requirement of $1.06 billion per site for nuclear power plant licensees. NRC regulations provide that the proceeds of this insurance must be used, first, to render the reactor safe and stable, and second, to complete decontamination operations. Only after proceeds are dedicated for such use and regulatory approval is secured would any remaining proceeds be made available for the benefit of plant owners or their creditors.
In the event that one or more acts of domestically-sponsored terrorism causes property damage under one or more or all nuclear insurance policies issued by NEIL (including, but not limited to, those described above) within 12 months from the date the first property damage occurs, the maximum recovery under all such nuclear insurance policies shall be an aggregate of $3.24 billion plus the additional amounts recovered for such losses from reinsurance, indemnity, and any other sources applicable to such losses. There is no aggregate limit involving one or more acts of foreign-sponsored terrorism.
Non-Nuclear Property Insurance (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). There is an aggregation limit of $1 billion for all parties insured by OIL for any one occurrence. Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Gulf States, and Entergy New Orleans.
In addition to the OIL program, Entergy has purchased additional coverage for some of its non-regulated, non-generation assets through Zurich American. This policy serves to buy-down the $20 million deductible and is placed on a scheduled location basis. The applicable deductibles are $100,000 or $250,000 as per the schedule provided to underwriters.
Nuclear Decommissioning and Other Retirement Costs (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy)
SFAS 143, "Accounting for Asset Retirement Obligations," which was implemented effective January 1, 2003, requires the recording of liabilities for all legal obligations associated with the retirement of long-lived assets that result from the normal operation of those assets.
These liabilities are recorded at their fair values (which is the present values of the estimated future cash outflows) in the period in which they are incurred, with an accompanying addition to the recorded cost of the long-lived asset. The asset retirement obligation is accreted each year through a charge to expense, to reflect the time value of money for this present value obligation. The amounts added to the carrying amounts of the long-lived assets are depreciated over the useful lives of the assets. SFAS 143 is expected to be earnings neutral to the rate-regulated business of the domestic utility companies and System Energy.
In accordance with ratemaking treatment and as required by SFAS 71, the depreciation provisions for the domestic utility companies and System Energy include a component for removal costs that are not asset retirement obligations under SFAS 143. In accordance with regulatory accounting principles, the domestic utility companies and System Energy have recorded regulatory assets (liabilities) in the following amounts to reflect their estimates of the difference between estimated incurred removal costs and estimated removal costs recovered in rates previously recorded as a component of accumulated depreciation:
|
|
December 31, |
||
|
|
2005 |
|
2004 |
|
|
(In Millions) |
||
|
|
|
|
|
Entergy Arkansas |
|
$86.2 |
|
$34.9 |
Entergy Gulf States |
|
$17.9 |
|
$0.9 |
Entergy Louisiana |
|
($22.8) |
|
($34.6) |
Entergy Mississippi |
|
$40.9 |
|
$32.7 |
Entergy New Orleans |
|
$5.4 |
|
$1.3 |
System Energy |
|
$17.9 |
|
$17.1 |
The cumulative decommissioning and retirement cost liabilities and expenses recorded in 2005 by Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy were as follows:
|
|
|
|
|
|
|
Change in Cash Flow Estimate |
|
|
(In Millions) |
|||||||||
ANO 1 and ANO 2 |
$492.7 |
|
$31.3 |
|
$5.3 |
|
($87.2) |
|
$442.1 |
River Bend |
$152.1 |
|
$13.8 |
|
$9.6 |
|
$- |
|
$175.5 |
Waterford 3 |
$347.3 |
|
$18.7 |
|
$8.9 |
|
($153.6) |
|
$221.3 |
Grand Gulf |
$335.9 |
|
$24.4 |
|
$- |
|
($41.4) |
|
$318.9 |
Entergy periodically reviews and updates estimated decommissioning costs. The actual decommissioning costs may vary from the estimates because of regulatory requirements, changes in technology, and increased costs of labor, materials, and equipment.
In the first quarter of 2004, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for ANO 1 and 2 as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of the plants will begin. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a $19.5 million reduction in utility plant and an $88.2 million reduction in the related regulatory asset.
In the third quarter of 2004, Entergy Gulf States recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for River Bend that reflected an expected life extension for the plant. The revised estimate resulted in a $166.4 million reduction in decommissioning liability, along with a $31.3 million reduction in utility plant, a $49.6 million reduction in non-utility property, a $40.1 million reduction in the related regulatory asset, and a regulatory liability of $17.7 million. For the portion of River Bend not subject to cost-based ratemaking, the revised estimate resulted in the elimination of the asset retirement cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 million ($17 million net-of-tax).
In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.
In the third quarter of 2005, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability for ANO 2 in accordance with the receipt of approval by the NRC of Entergy Arkansas' application for a life extension for the unit. The revised estimate resulted in an $87.2 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset.
In the third quarter of 2005, System Energy recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Grand Gulf. The revised estimate resulted in a $41.4 million reduction in the decommissioning cost liability for Grand Gulf, along with a $39.7 million reduction in utility plant and a $1.7 million reduction in the related regulatory asset.
In December 2005, Entergy implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent primarily Entergy's obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. For the U.S. Utility business, the implementation of FIN 47 for the rate-regulated business of the domestic utility companies was recorded as regulatory assets, with no resulting effect on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future customers. As a result of this treatment, FIN 47 is expected to be earnings neutral to the rate-regulated business of the domestic utility companies. Upon implementation of FIN 47 in December 2005, assets and liabilities increased by $28.8 million for the U.S. Utility segment as a result of recording the asset retirement obligations at their fair values of $30.3 million as determined under FIN 47, increasing utility plant by $2.7 million, increasing accumulated depreciation by $1.8 million, and recording the related regulatory assets of $27.9 million. The implementation of FIN 47 for portions of Entergy Gulf States not subject to cost-based ratemaking decreased earnings by $0.9 million net-of-tax. If FIN 47 had been applied by Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans during prior periods, the following impacts would have resulted:
|
|
December 31, |
|
December 31, |
|
|
(in Thousands) |
||
Entergy Arkansas |
|
|
|
|
Asset retirement obligations actually recorded |
|
$492,745 |
|
$567,546 |
Pro forma effect of FIN 47 |
|
$5,057 |
|
$4,770 |
Asset retirement obligations - pro forma |
|
$497,802 |
|
$572,316 |
|
|
|
|
|
Entergy Gulf States |
|
|
|
|
Asset retirement obligations actually recorded |
|
$152,095 |
|
$298,785 |
Pro forma effect of FIN 47 |
|
$9,035 |
|
$8,524 |
Asset retirement obligations - pro forma |
|
$161,130 |
|
$307,309 |
|
|
|
|
|
Entergy Louisiana |
|
|
|
|
Asset retirement obligations actually recorded |
|
$347,255 |
|
$325,598 |
Pro forma effect of FIN 47 |
|
$8,379 |
|
$7,904 |
Asset retirement obligations - pro forma |
|
$355,634 |
|
$333,502 |
|
|
|
|
|
Entergy Mississippi |
|
|
|
|
Asset retirement obligations actually recorded |
|
$- |
|
$- |
Pro forma effect of FIN 47 |
|
$3,789 |
|
$3,575 |
Asset retirement obligations - pro forma |
|
$3,789 |
|
$3,575 |
|
|
|
|
|
Entergy New Orleans |
|
|
|
|
Asset retirement obligations actually recorded |
|
$- |
|
$- |
Pro forma effect of FIN 47 |
|
$2,263 |
|
$2,115 |
Asset retirement obligations - pro forma |
|
$2,263 |
|
$2,115 |
The impact on net income for each of the above companies for each of the years ended December 31, 2005, 2004, and 2003 would have been immaterial.
Entergy maintains decommissioning trust funds that are committed to meeting the costs of decommissioning the nuclear power plants. The fair values of the decommissioning trust funds and asset retirement obligation-related regulatory assets of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy as of December 31, 2005 are as follows:
|
|
Decommissioning |
|
Regulatory |
|
|
(In Millions) |
||
|
|
|
|
|
ANO 1 & ANO 2 |
|
$402.1 |
|
$99.7 |
River Bend |
|
$310.8 |
|
- |
Waterford 3 |
|
$187.1 |
|
$48.7 |
Grand Gulf |
|
$236.0 |
|
$99.4 |
The Energy Policy Act of 1992 contains a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning (D&D) of the DOE's past uranium enrichment operations. Annual assessments in 2005 were $4.5 million for Entergy Arkansas, $1.1 million for Entergy Gulf States, $1.7 million for Entergy Louisiana, and $1.9 million for System Energy. The Energy Policy Act calls for cessation of annual D&D assessments not later than October 24, 2007. At December 31, 2005, one year of assessments was remaining. D&D fees are included in other current liabilities and other non-current liabilities and, as of December 31, 2005, recorded liabilities were $4.5 million for Entergy Arkansas, $1.1 million for Entergy Gulf States, $1.7 million for Entergy Louisiana, and $1.7 million for System Energy. Regulatory assets in the financial statements offset these liabilities, with the exception of Entergy Gulf States' 30% non-regulated portion. These assessments are recovered through rates in the same manner as fuel costs.
CashPoint Bankruptcy (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
In 2003 the domestic utility companies entered an agreement with CashPoint Network Services (CashPoint) under which CashPoint was to manage a network of payment agents through which Entergy's utility customers could pay their bills. The payment agent system allows customers to pay their bills at various commercial or governmental locations, rather than sending payments by mail. Approximately one-third of Entergy's utility customers use payment agents.
On April 19, 2004, CashPoint failed to pay funds due to the domestic utility companies that had been collected through payment agents. The domestic utility companies then obtained a temporary restraining order from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belonging to Entergy, except by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another company to manage all of their payment agents. The domestic utility companies filed proofs of claim in the CashPoint bankruptcy proceeding in September 2004. Although Entergy cannot precisely determine at this time the amount that CashPoint owes to the domestic utility companies that may not be repaid, it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy does not believe is likely, the current estimates of maximum exposure to loss are approximately as follows:
Amount |
||
(In Millions) |
||
Entergy Arkansas |
$1.8 |
|
Entergy Gulf States |
$7.7 |
|
Entergy Louisiana |
$8.8 |
|
Entergy Mississippi |
$4.3 |
|
Entergy New Orleans |
$2.4 |
Environmental Issues (Entergy Gulf States)
Entergy Gulf States has been designated as a PRP for the cleanup of certain hazardous waste disposal sites. As of December 31, 2005, Entergy Gulf States does not expect the remaining clean-up costs to exceed its recorded liability of $1.5 million for the remaining sites at which the EPA has designated Entergy Gulf States as a PRP.
City Franchise Ordinances (Entergy New Orleans)
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to franchise ordinances. These ordinances contain a continuing option for the city to purchase Entergy New Orleans' electric and gas utility properties.
Waterford 3 Lease Obligations (Entergy Louisiana)
On September 28, 1989, Entergy Louisiana entered into three identical transactions for the sale and leaseback of undivided interests (aggregating approximately 9.3%) in Waterford 3. In July 1997, Entergy Louisiana caused the lessors to issue $307.6 million aggregate principal amount of Waterford 3 Secured Lease Obligation Bonds, 8.09% Series due 2017, to refinance the outstanding bonds originally issued to finance the purchase of the undivided interests by the lessors. The lease payments were reduced to reflect the lower interest costs. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the termination of the lease transactions and may be required to assume the outstanding bonds issued to finance, in part, the lessors' acquisition of the undivided interests in Waterford 3.
Employment Litigation (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy New Orleans, System Energy, or their affiliates, are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, and/or other protected characteristics. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, and their affiliates are vigorously defending these suits and deny any liability to the plaintiffs. Nevertheless, no assurance can be given as to the outcome of these cases.
Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Numerous lawsuits have been filed in federal and state courts in Texas, Louisiana, and Mississippi primarily by contractor employees in the 1950-1980 timeframe against Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans, and Entergy Mississippi as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Many other defendants are named in these lawsuits as well. Presently, there are approximately 555 lawsuits involving approximately 10,000 claims. Management believes that adequate provisions have been established to cover any exposure. Additionally, negotiations continue with insurers to recover more reimbursement. Management believes that loss exposure has been and will continue to be handled successfully so that the ultimate resolution of these matters will not be material, in the aggregate, to its financial position or results of operation.
Grand Gulf - Related Agreements
Capital Funds Agreement (System Energy)
System Energy has entered into agreements with Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans whereby they are obligated to purchase their respective entitlements of capacity and energy from System Energy's 90% interest in Grand Gulf, and to make payments that, together with other available funds, are adequate to cover System Energy's operating expenses. System Energy would have to secure funds from other sources, including Entergy Corporation's obligations under the Capital Funds Agreement, to cover any shortfalls from payments received from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under these agreements.
Unit Power Sales Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
System Energy has agreed to sell all of its 90% share of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans in accordance with specified percentages (Entergy Arkansas-36%, Entergy Louisiana-14%, Entergy Mississippi-33%, and Entergy New Orleans-17%) as ordered by FERC. Charges under this agreement are paid in consideration for the purchasing companies' respective entitlement to receive capacity and energy and are payable irrespective of the quantity of energy delivered so long as the unit remains in commercial operation. The agreement will remain in effect until terminated by the parties and the termination is approved by FERC, most likely upon Grand Gulf's retirement from service. Monthly obligations are based on actual capacity and energy costs. The average monthly payments for 2005 under the agreement are approximately $16.5 million for Entergy Arkansas, $6.6 million for Entergy Louisiana, $13.3 million for Entergy Mississippi, and $8.1 million for Entergy New Orleans.
Availability Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans are individually obligated to make payments or subordinated advances to System Energy in accordance with stated percentages (Entergy Arkansas-17.1%, Entergy Louisiana-26.9%, Entergy Mississippi-31.3%, and Entergy New Orleans-24.7%) in amounts that, when added to amounts received under the Unit Power Sales Agreement or otherwise, are adequate to cover all of System Energy's operating expenses as defined, including an amount sufficient to amortize the cost of Grand Gulf 2 over 27 years. (See Reallocation Agreement terms below.) System Energy has assigned its rights to payments and advances to certain creditors as security for certain obligations. Since commercial operation of Grand Gulf, payments under the Unit Power Sales Agreement have exceeded the amounts payable under the Availability Agreement. Accordingly, no payments under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power Sales Agreement payments, and System Energy is unable to obtain funds from other sources, Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by System Energy or its creditors for payments or advances under the Availability Agreement (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments.
Reallocation Agreement (Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans entered into the Reallocation Agreement relating to the sale of capacity and energy from Grand Gulf and the related costs, in which Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans agreed to assume all of Entergy Arkansas' responsibilities and obligations with respect to Grand Gulf under the Availability Agreement. FERC's decision allocating a portion of Grand Gulf capacity and energy to Entergy Arkansas supersedes the Reallocation Agreement as it relates to Grand Gulf. Responsibility for any Grand Gulf 2 amortization amounts has been individually allocated (Entergy Louisiana-26.23%, Entergy Mississippi-43.97%, and Entergy New Orleans-29.80%) under the terms of the Reallocation Agreement. However, the Reallocation Agreement does not affect Entergy Arkansas' obligation to System Energy's lenders under the assignments referred to in the preceding paragraph. Entergy Arkansas would be liable for its share of such amounts if Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans were unable to meet their contractual obligations. No payments of any amortization amounts will be required so long as amounts paid to System Energy under the Unit Power Sales Agreement, including other funds available to System Energy, exceed amounts required under the Availability Agreement, which is expected to be the case for the foreseeable future.
Reimbursement Agreement (System Energy)
In December 1988, System Energy entered into two separate, but identical, arrangements for the sale and leaseback of an approximate aggregate 11.5% ownership interest in Grand Gulf. In connection with the equity funding of the sale and leaseback arrangements, letters of credit are required to be maintained to secure certain amounts payable for the benefit of the equity investors by System Energy under the leases. The current letters of credit are effective until May 29, 2009.
Under the provisions of the reimbursement agreement relating to the letters of credit, System Energy has agreed to a number of covenants regarding the maintenance of certain capitalization and fixed charge coverage ratios. System Energy agreed, during the term of the reimbursement agreement, to maintain a ratio of debt to total liabilities and equity less than or equal to 70%. In addition, System Energy must maintain, with respect to each fiscal quarter during the term of the reimbursement agreement, a ratio of adjusted net income to interest expense of at least 1.50 times earnings. As of December 31, 2005, System Energy's debt ratio was approximately 31.2%, and its fixed charge coverage ratio for 2005 was approximately 4.0, calculated, in each case, as prescribed in the reimbursement agreement.
NOTE 9. LEASES (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
General
As of December 31, 2005 the domestic utility companies had capital leases and non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities (excluding nuclear fuel leases and the sale and leaseback transactions) with minimum lease payments as follows:
Capital Leases
|
Entergy |
Entergy |
||
(In Thousands) |
||||
2006 |
$5,705 |
$42 |
||
2007 |
3,484 |
11 |
||
2008 |
1,307 |
- |
||
2009 |
237 |
- |
||
2010 |
237 |
- |
||
Years thereafter |
2,331 |
- |
||
Minimum lease payments |
13,301 |
53 |
||
Less: Amount representing interest |
3,400 |
3 |
||
Present value of net minimum lease payments |
$9,901 |
$50 |
Operating Leases
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
|||||
(In Thousands) |
||||||||||
2006 |
$22,685 |
$24,682 |
$8,368 |
$7,895 |
$1,476 |
|||||
2007 |
19,978 |
18,164 |
7,415 |
4,705 |
1,273 |
|||||
2008 |
17,235 |
10,906 |
6,183 |
3,979 |
750 |
|||||
2009 |
10,126 |
9,988 |
5,034 |
3,352 |
480 |
|||||
2010 |
9,244 |
9,378 |
3,749 |
2,839 |
269 |
|||||
Years thereafter |
50,553 |
109,517 |
9,202 |
9,298 |
271 |
|||||
Minimum lease payments |
$129,821 |
$182,635 |
$39,951 |
$32,068 |
$4,519 |
Rental Expenses
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Millions) |
||||||||||||
2005 |
$15.3 |
$23.1 |
$9.8 |
$2.8 |
$1.5 |
$1.3 |
||||||
2004 |
$17.4 |
$24.4 |
$11.9 |
$3.4 |
$1.9 |
$2.0 |
||||||
2003 |
$19.4 |
$26.5 |
$13.8 |
$5.4 |
$2.5 |
$2.0 |
In addition to the above rental expense, railcar operating lease payments and oil tank facilities lease payments are recorded in fuel expense in accordance with regulatory treatment. Railcar operating lease payments were $6.6 million in 2005, $9.3 million in 2004, and $6.8 million in 2003 for Entergy Arkansas and $1.9 million in 2005, $2.0 million in 2004, and $1.8 million in 2003 for Entergy Gulf States. Oil tank facilities lease payments for Entergy Mississippi were $3.5 million in 2005, $3.2 million for 2004, and $3.1 million for 2003.
Nuclear Fuel Leases
As of December 31, 2005, arrangements to lease nuclear fuel existed in an aggregate amount up to $150 million for Entergy Arkansas, $105 million for Entergy Gulf States, $80 million for Entergy Louisiana, and $110 million for System Energy. As of December 31, 2005, the unrecovered cost base of nuclear fuel leases amounted to approximately $92.2 million for Entergy Arkansas, $55.2 million for Entergy Gulf States, $58.5 million for Entergy Louisiana, and $87.5 million for System Energy. The lessors finance the acquisition and ownership of nuclear fuel through loans made under revolving credit agreements, the issuance of commercial paper, and the issuance of intermediate-term notes. The credit agreements for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy each have a termination date of October 30, 2006. The termination dates may be extended from time to time with the consent of the lenders. The intermediate-term notes issued pursuant to these fuel lease arrangements have varying maturities through February 15, 2009. It is expected that additional financing under the leases will be arranged as needed to acquire additional fuel, to pay interest, and to pay maturing debt. However, if such additional financing cannot be arranged, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations in accordance with the fuel lease.
Lease payments are based on nuclear fuel use. The table below represents the total nuclear fuel lease payments (principal and interest) as well as the separate interest component charged to operations in 2005, 2004, and 2003:
2005 |
2004 |
2003 |
|||||||||
Lease |
|
Lease |
|
Lease |
|
||||||
(In Millions) |
|||||||||||
Entergy Arkansas |
$47.5 |
$3.9 |
$53.0 |
$4.3 |
$49.9 |
$3.3 |
|||||
Entergy Gulf States |
27.2 |
3.5 |
29.7 |
3.2 |
27.8 |
3.0 |
|||||
Entergy Louisiana |
30.9 |
2.6 |
36.1 |
2.5 |
32.3 |
2.4 |
|||||
System Energy |
30.2 |
2.9 |
27.8 |
2.8 |
32.0 |
3.1 |
|||||
Total |
$135.8 |
$12.9 |
$146.6 |
$12.8 |
$142.0 |
$11.8 |
Sale and Leaseback Transactions
Waterford 3 Lease Obligations (Entergy Louisiana)
In 1989, Entergy Louisiana sold and leased back 9.3% of its interest in Waterford 3 for the aggregate sum of $353.6 million. The lease has an approximate term of 28 years. The lessors financed the sale-leaseback through the issuance of Waterford 3 Secured Lease Obligation Bonds. The lease payments made by Entergy Louisiana are sufficient to service the debt.
In 1994, Entergy Louisiana did not exercise its option to repurchase the 9.3% interest in Waterford 3. As a result, Entergy Louisiana issued $208.2 million of non-interest bearing first mortgage bonds as collateral for the equity portion of certain amounts payable under the lease.
In 1997, the lessors refinanced the outstanding bonds used to finance the purchase of Waterford 3 at lower interest rates, which reduced the annual lease payments.
Upon the occurrence of certain events, Entergy Louisiana may be obligated to assume the outstanding bonds used to finance the purchase of the unit and to pay an amount sufficient to withdraw from the lease transaction. Such events include lease events of default, events of loss, deemed loss events, or certain adverse "Financial Events." "Financial Events" include, among other things, failure by Entergy Louisiana, following the expiration of any applicable grace or cure period, to maintain (i) total equity capital (including preferred stock) at least equal to 30% of adjusted capitalization, or (ii) a fixed charge coverage ratio of at least 1.50 computed on a rolling 12 month basis.
As of December 31, 2005, Entergy Louisiana's total equity capital (including preferred stock) was 49.51% of adjusted capitalization and its fixed charge coverage ratio for 2005 was 3.69.
As of December 31, 2005, Entergy Louisiana had future minimum lease payments (reflecting an overall implicit rate of 7.45%) in connection with the Waterford 3 sale and leaseback transactions, which are recorded as long-term debt, as follows:
|
|
Amount |
|
|
(In Thousands) |
|
|
|
2006 |
|
$18,261 |
2007 |
|
18,754 |
2008 |
|
22,606 |
2009 |
|
32,452 |
2010 |
|
35,138 |
Years thereafter |
|
298,924 |
Total |
|
426,135 |
Less: Amount representing interest |
|
178,410 |
Present value of net minimum lease payments |
|
$247,725 |
Grand Gulf Lease Obligations (System Energy)
In December 1988, System Energy sold 11.5% of its undivided ownership interest in Grand Gulf for the aggregate sum of $500 million. Subsequently, System Energy leased back its interest in the unit for a term of 26 1/2 years. System Energy has the option of terminating the lease and repurchasing the 11.5% interest in the unit at certain intervals during the lease. Furthermore, at the end of the lease term, System Energy has the option of renewing the lease or repurchasing the 11.5% interest in Grand Gulf.
In May 2004 System Energy caused the Grand Gulf lessors to refinance the outstanding bonds that they had issued to finance the purchase of their undivided interest in Grand Gulf. The refinancing is at a lower interest rate, and System Energy's lease payments have been reduced to reflect the lower interest costs.
System Energy is required to report the sale-leaseback as a financing transaction in its financial statements. For financial reporting purposes, System Energy expenses the interest portion of the lease obligation and the plant depreciation. However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes. Consistent with a recommendation contained in a FERC audit report, System Energy recorded as a net regulatory asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and is recording this difference as a regulatory asset or liability on an ongoing basis, resulting in a zero net balance at the end of the lease term. The amount of this net regulatory asset was $64.8 million and $75.4 million as of December 31, 2005 and 2004, respectively.
As of December 31, 2005, System Energy had future minimum lease payments (reflecting an implicit rate of 5.02%), which are recorded as long-term debt as follows:
|
|
Amount |
|
|
(In Thousands) |
|
|
|
2006 |
|
$46,019 |
2007 |
|
46,552 |
2008 |
|
47,128 |
2009 |
|
47,760 |
2010 |
|
48,569 |
Years thereafter |
|
253,833 |
Total |
|
489,861 |
Less: Amount representing interest |
|
125,055 |
Present value of net minimum lease payments |
|
$364,806 |
NOTE 10. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Qualified Pension Plans
Entergy's domestic utility companies and System Energy participate in two of Entergy's qualified pension plans: "Entergy Corporation Retirement Plan for Non-Bargaining Employees" and "Entergy Corporation Retirement Plan for Bargaining Employees." Entergy Corporation and its subsidiaries fund pension costs in accordance with contribution guidelines established by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The assets of the plans include common and preferred stocks, fixed-income securities, interest in a money market fund, and insurance contracts. As of December 31, 2005 and 2004, Entergy's domestic utility companies and System Energy recognized an additional minimum pension liability for the excess of the accumulated benefit obligation over the fair market value of plan assets. In accordance with SFAS 87, an offsetting intangible asset, up to the amount of any unrecognized prior service cost, was also recorded, with the remaining offset to the liability recorded as a regulatory asset, reflective of the recovery mechanism for pension costs in the domestic utility companies' jurisdictions. Entergy's domestic utility companies' and System Energy's pension costs are recovered from customers as a component of cost of service in each of its jurisdictions. Entergy uses a December 31 measurement date for its pension plans.
Components of Qualified Net Pension Cost
Total 2005, 2004, and 2003 qualified pension cost of the domestic utility companies and System Energy, including amounts capitalized, included the following components:
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on assets |
|
(35,835) |
|
(39,424) |
|
(26,681) |
|
(14,292) |
|
(3,407) |
|
(5,554) |
Amortization of transition asset |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(277) |
Amortization of prior service cost |
|
1,662 |
|
1,234 |
|
562 |
|
513 |
|
225 |
|
50 |
Recognized net loss |
|
7,885 |
|
1,646 |
|
4,687 |
|
2,249 |
|
1,805 |
|
877 |
Net pension cost |
|
$24,737 |
|
$4,295 |
|
$9,587 |
|
$4,992 |
|
$5,298 |
|
$4,418 |
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on assets |
|
(36,913) |
|
(39,682) |
|
(27,510) |
|
(14,716) |
|
(2,568) |
|
(4,556) |
Amortization of transition asset |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(319) |
Amortization of prior service cost |
|
1,662 |
|
1,511 |
|
650 |
|
513 |
|
226 |
|
67 |
Recognized net loss |
|
3,952 |
|
405 |
|
1,344 |
|
794 |
|
898 |
|
788 |
Net pension cost |
|
$16,488 |
|
$398 |
|
$3,283 |
|
$2,121 |
|
$4,590 |
|
$4,555 |
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on assets |
|
(38,712) |
|
(41,784) |
|
(28,919) |
|
(15,434) |
|
(2,616) |
|
(3,944) |
Amortization of transition asset |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(319) |
Amortization of prior service cost |
|
1,737 |
|
1,931 |
|
789 |
|
584 |
|
236 |
|
73 |
Recognized net loss |
|
256 |
|
150 |
|
- |
|
83 |
|
- |
|
27 |
Curtailment loss |
|
5,305 |
|
2,133 |
|
2,748 |
|
1,065 |
|
129 |
|
944 |
Special termination benefits |
|
5,543 |
|
2,857 |
|
2,619 |
|
811 |
|
367 |
|
1,720 |
Net pension cost |
$18,294 |
$1,783 |
$3,634 |
$1,859 |
$3,613 |
$5,843 |
Qualified Pension Obligations, Plan Assets, Funded Status, and Amounts Not yet Recognized and Recognized in the Balance Sheet as of December 31, 2005 and 2004
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Thousands) |
||||||||||||
Change in Projected Benefit | ||||||||||||
Obligation (PBO) | ||||||||||||
Balance at 12/31/04 |
$624,816 |
$496,210 |
$379,102 |
$206,143 |
$78,350 |
$94,999 |
||||||
Service cost |
12,893 |
10,646 |
7,712 |
3,902 |
1,799 |
3,621 |
||||||
Interest cost |
38,132 |
30,193 |
23,307 |
12,620 |
4,876 |
5,701 |
||||||
Actuarial loss |
50,160 |
41,500 |
33,829 |
17,441 |
7,457 |
7,336 |
||||||
Benefits paid |
(35,876) |
(28,035) |
(22,497) |
(13,097) |
(3,733) |
(1,929) |
||||||
Balance at 12/31/05 |
$690,125 |
$550,514 |
$421,453 |
$227,009 |
$88,749 |
$109,728 |
||||||
Change in Plan Assets | ||||||||||||
Fair value of assets at 12/31/04 |
$433,256 |
$463,539 |
$329,404 |
$175,278 |
$30,813 |
$56,000 |
||||||
Actual return on plan assets |
29,944 |
33,219 |
24,024 |
12,149 |
3,200 |
5,406 |
||||||
Employer contributions |
4,003 |
14,818 |
- |
1,025 |
14,404 |
7,694 |
||||||
Benefits paid |
(35,876) |
(28,035) |
(22,497) |
(13,097) |
(3,733) |
(1,929) |
||||||
Fair value of assets at 12/31/05 |
$431,327 |
$483,541 |
$330,931 |
$175,355 |
$44,684 |
$67,171 |
||||||
Funded status |
($258,798) |
($66,973) |
($90,522) |
($51,654) |
($44,065) |
($42,557) |
||||||
Amounts not yet recognized | ||||||||||||
in the balance sheet | ||||||||||||
Unrecognized prior service cost |
6,515 |
4,703 |
3,200 |
2,179 |
1,038 |
235 |
||||||
Unrecognized net loss |
181,987 |
84,689 |
107,760 |
54,160 |
32,216 |
26,906 |
||||||
Prepaid/(accrued) pension cost | ||||||||||||
recognized in the balance sheet |
($70,296) |
$22,419 |
$20,438 |
$4,685 |
($10,811) |
($15,416) |
||||||
Amounts recognized in | ||||||||||||
the balance sheet | ||||||||||||
Prepaid/(accrued) pension liability |
($70,296) |
$22,419 |
$20,438 |
$4,685 |
($10,811) |
($15,416) |
||||||
Additional minimum pension liability |
(145,634) |
(16,352) |
(75,271) |
(42,919) |
(24,335) |
(12,432) |
||||||
Intangible asset |
7,595 |
3,245 |
3,200 |
2,427 |
1,038 |
366 |
||||||
Accumulated other comprehensive income (before taxes) |
- |
1,908 |
- |
- |
- |
- |
||||||
Regulatory asset |
138,039 |
11,199 |
72,071 |
40,492 |
23,297 |
12,066 |
||||||
Net amount recognized |
($70,296) |
$22,419 |
$20,438 |
$4,685 |
($10,811) |
($15,416) |
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Thousands) |
||||||||||||
Change in Projected Benefit | ||||||||||||
Obligation (PBO) | ||||||||||||
Balance at 12/31/03 |
$565,004 |
$467,707 |
$340,212 |
$190,184 |
$67,866 |
$79,033 |
||||||
Service cost |
11,941 |
9,693 |
7,009 |
3,615 |
1,569 |
3,386 |
||||||
Interest cost |
35,846 |
28,471 |
21,790 |
11,915 |
4,465 |
5,189 |
||||||
Actuarial loss |
46,590 |
17,687 |
32,309 |
13,200 |
8,169 |
9,175 |
||||||
Benefits paid |
(34,565) |
(27,348) |
(22,218) |
(12,771) |
(3,719) |
(1,784) |
||||||
Balance at 12/31/04 |
$624,816 |
$496,210 |
$379,102 |
$206,143 |
$78,350 |
$94,999 |
||||||
Change in Plan Assets | ||||||||||||
Fair value of assets at 12/31/03 |
$423,214 |
$448,490 |
$316,669 |
$169,958 |
$29,565 |
$45,375 |
||||||
Actual return on plan assets |
39,265 |
42,380 |
31,046 |
16,268 |
2,849 |
8,667 |
||||||
Employer contributions |
5,342 |
17 |
3,907 |
1,823 |
2,118 |
3,742 |
||||||
Benefits paid |
(34,565) |
(27,348) |
(22,218) |
(12,771) |
(3,719) |
(1,784) |
||||||
Fair value of assets at 12/31/04 |
$433,256 |
$463,539 |
$329,404 |
$175,278 |
$30,813 |
$56,000 |
||||||
Funded status |
($191,560) |
($32,671) |
($49,698) |
($30,865) |
($47,537) |
($38,999) |
||||||
Amounts not yet recognized | ||||||||||||
in the balance sheet | ||||||||||||
Unrecognized transition asset |
- |
- |
- |
- |
- |
(277) |
||||||
Unrecognized prior service cost |
8,177 |
5,938 |
3,762 |
2,692 |
1,263 |
286 |
||||||
Unrecognized net loss |
133,821 |
38,628 |
75,962 |
36,825 |
26,357 |
20,298 |
||||||
Prepaid/(accrued) pension cost | ||||||||||||
recognized in the balance sheet |
($49,562) |
$11,895 |
$30,026 |
$8,652 |
($19,917) |
($18,692) |
||||||
Amounts recognized in | ||||||||||||
the balance sheet | ||||||||||||
Prepaid/(accrued) pension liability |
($49,562) |
$11,895 |
$30,026 |
$8,652 |
($19,917) |
($18,692) |
||||||
Additional minimum pension liability |
(81,161) |
- |
(38,871) |
(23,492) |
(16,928) |
(7,678) |
||||||
Intangible asset |
10,313 |
- |
4,759 |
3,308 |
1,698 |
247 |
||||||
Regulatory asset |
70,848 |
- |
34,112 |
20,184 |
15,230 |
7,431 |
||||||
Net amount recognized |
($49,562) |
$11,895 |
$30,026 |
$8,652 |
($19,917) |
($18,692) |
Other Postretirement Benefits
The domestic utility companies and System Energy also currently provide health care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits if they reach retirement age while still working for Entergy. Entergy uses a December 31 measurement date for its postretirement benefit plans.
Effective January 1, 1993, Entergy adopted SFAS 106, which required a change from a cash method to an accrual method of accounting for postretirement benefits other than pensions. At January 1, 1993, the actuarially determined accumulated postretirement benefit obligation (APBO) earned by retirees and active employees was estimated to be approximately $241.4 million for Entergy (other than Entergy Gulf States) and $128 million for Entergy Gulf States. Such obligations are being amortized over a 20-year period that began in 1993.
Entergy Arkansas, the portion of Entergy Gulf States regulated by the PUCT, Entergy Mississippi, and Entergy New Orleans have received regulatory approval to recover SFAS 106 costs through rates. Entergy Arkansas began recovery in 1998, pursuant to an APSC order. This order also allowed Entergy Arkansas to amortize a regulatory asset (representing the difference between SFAS 106 costs and cash expenditures for other postretirement benefits incurred for a five-year period that began January 1, 1993) over a 15-year period that began in January 1998.
The LPSC ordered the portion of Entergy Gulf States regulated by the LPSC and Entergy Louisiana to continue the use of the pay-as-you-go method for ratemaking purposes for postretirement benefits other than pensions. However, the LPSC retains the flexibility to examine individual companies' accounting for postretirement benefits to determine if special exceptions to this order are warranted.
Pursuant to regulatory directives, Entergy Arkansas, Entergy Mississippi, Entergy New Orleans, the portion of Entergy Gulf States regulated by the PUCT, and System Energy fund postretirement benefit obligations collected in rates. System Energy is funding, on behalf of Entergy Operations, postretirement benefits associated with Grand Gulf. Entergy Louisiana and Entergy Gulf States continue to recover a portion of these benefits regulated by the LPSC and FERC on a pay-as-you-go basis.
Components of Net Other Postretirement Benefit Cost
Total 2005, 2004, and 2003 other postretirement benefit costs of the domestic utility companies and System Energy, including amounts capitalized and deferred, included the following components:
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
|
(In Thousands) |
|||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on APBO |
|
10,555 |
|
10,476 |
|
6,872 |
|
3,502 |
|
3,255 |
|
1,566 |
|
Expected return on assets |
|
(6,523) |
|
(5,271) |
|
- |
|
(2,676) |
|
(2,314) |
|
(1,552) |
|
Amortization of transition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
(1,630) |
|
- |
|
(97) |
|
(546) |
|
38 |
|
(672) |
|
Recognized net loss |
|
5,806 |
|
2,854 |
|
3,065 |
|
2,287 |
|
1,095 |
|
626 |
|
Net other postretirement benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
|
(In Thousands) |
|||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on APBO |
|
10,075 |
|
11,050 |
|
6,641 |
|
3,222 |
|
3,204 |
|
1,430 |
|
Expected return on assets |
|
(6,210) |
|
(4,995) |
|
- |
|
(2,554) |
|
(2,263) |
|
(1,362) |
|
Amortization of transition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
27 |
|
- |
|
98 |
|
16 |
|
38 |
|
(361) |
|
Recognized net loss |
|
3,937 |
|
1,620 |
|
2,003 |
|
1,503 |
|
522 |
|
358 |
|
Net other postretirement benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
|
(In Thousands) |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on APBO |
|
10,637 |
|
11,314 |
|
6,780 |
|
3,459 |
|
3,436 |
|
1,352 |
|
Expected return on assets |
|
(4,859) |
|
(4,349) |
|
- |
|
(2,186) |
|
(2,010) |
|
(1,088) |
|
Amortization of transition |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
143 |
|
163 |
|
82 |
|
51 |
|
52 |
|
(140) |
|
Recognized net loss |
|
3,497 |
|
1,575 |
|
1,496 |
|
1,160 |
|
475 |
|
350 |
|
Curtailment loss |
|
9,276 |
|
6,301 |
|
5,041 |
|
1,259 |
|
996 |
|
2,524 |
|
Special termination benefits |
|
794 |
|
512 |
|
452 |
|
73 |
|
28 |
|
284 |
|
Net other postretirement benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefit Obligations, Plan Assets, Funded Status, and Amounts Not Yet Recognized and Recognized in the Balance Sheet as of December 31, 2005 and 2004:
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Thousands) |
||||||||||||
Change in APBO | ||||||||||||
Balance at 12/31/04 |
$179,358 |
$201,264 |
$115,796 |
$57,578 |
$54,849 |
$26,902 |
||||||
Service cost |
4,648 |
5,300 |
2,958 |
1,463 |
805 |
1,724 |
||||||
Interest cost |
10,555 |
10,476 |
6,872 |
3,502 |
3,255 |
1,566 |
||||||
Actuarial loss |
24,691 |
11,390 |
14,273 |
10,433 |
6,425 |
3,110 |
||||||
Benefits paid |
(15,882) |
(13,301) |
(9,888) |
(5,330) |
(5,193) |
(1,182) |
||||||
Plan amendments |
(5,629) |
(24,291) |
(1,013) |
(2,177) |
(637) |
(3,942) |
||||||
Plan participant contributions |
1,611 |
1,451 |
1,039 |
585 |
711 |
64 |
||||||
Balance at 12/31/05 |
$199,352 |
$192,289 |
$130,037 |
$66,054 |
$60,215 |
$28,242 |
||||||
Change in Plan Assets | ||||||||||||
Fair value of assets at 12/31/04 |
$76,991 |
$66,825 |
$- |
$32,071 |
$35,247 |
$21,308 |
||||||
Actual return on plan assets |
4,449 |
3,564 |
- |
1,756 |
1,513 |
973 |
||||||
Employer contributions |
18,195 |
14,331 |
8,849 |
4,787 |
4,739 |
1,671 |
||||||
Plan participant contributions |
1,611 |
1,451 |
1,039 |
585 |
711 |
64 |
||||||
Benefits paid |
(15,882) |
(13,301) |
(9,888) |
(5,330) |
(5,193) |
(1,182) |
||||||
Fair value of assets at 12/31/05 |
$85,364 |
$72,870 |
$- |
$33,869 |
$37,017 |
$22,834 |
||||||
Funded status |
($113,988) |
($119,419) |
($130,037) |
($32,185) |
($23,198) |
($5,408) |
||||||
Amounts not yet recognized | ||||||||||||
in the balance sheet | ||||||||||||
Unrecognized transition obligation |
5,746 |
4,222 |
2,675 |
2,459 |
11,630 |
60 |
||||||
Unrecognized prior service cost |
(8,012) |
- |
3 |
(2,646) |
380 |
(6,031) |
||||||
Unrecognized net loss |
100,144 |
67,332 |
55,932 |
37,495 |
21,751 |
12,763 |
||||||
Prepaid/(accrued) postretirement benefit cost recognized in the balance sheet |
|
|
|
|
|
|
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Thousands) |
||||||||||||
Change in APBO | ||||||||||||
Balance at 12/31/03 |
$187,259 |
$194,205 |
$112,675 |
$57,786 |
$55,062 |
$25,466 |
||||||
Service cost |
3,860 |
5,328 |
2,371 |
1,213 |
662 |
1,389 |
||||||
Interest cost |
10,075 |
11,050 |
6,641 |
3,222 |
3,204 |
1,430 |
||||||
Actuarial loss |
10,714 |
9,086 |
8,175 |
6,787 |
3,624 |
1,441 |
||||||
Benefits paid |
(15,964) |
(13,832) |
(9,843) |
(5,307) |
(5,967) |
(1,719) |
||||||
Plan amendments (a) |
(18,279) |
(6,406) |
(5,546) |
(6,894) |
(2,582) |
(1,125) |
||||||
Plan participant contributions |
1,693 |
1,833 |
1,323 |
771 |
846 |
20 |
||||||
Balance at 12/31/04 |
$179,358 |
$201,264 |
$115,796 |
$57,578 |
$54,849 |
$26,902 |
||||||
Change in Plan Assets | ||||||||||||
Fair value of assets at 12/31/03 |
$68,876 |
$59,511 |
$- |
$28,932 |
$33,158 |
$16,821 |
||||||
Actual return on plan assets |
5,657 |
4,773 |
- |
2,154 |
2,340 |
1,495 |
||||||
Employer contributions |
16,729 |
14,540 |
8,520 |
5,521 |
4,870 |
4,691 |
||||||
Plan participant contributions |
1,693 |
1,833 |
1,323 |
771 |
846 |
20 |
||||||
Benefits paid |
(15,964) |
(13,832) |
(9,843) |
(5,307) |
(5,967) |
(1,719) |
||||||
Fair value of assets at 12/31/04 |
$76,991 |
$66,825 |
$- |
$32,071 |
$35,247 |
$21,308 |
||||||
Funded status |
($102,367) |
($134,439) |
($115,796) |
($25,507) |
($19,602) |
($5,594) |
||||||
Amounts not yet recognized | ||||||||||||
in the balance sheet | ||||||||||||
Unrecognized transition obligation |
6,567 |
30,310 |
3,057 |
2,810 |
13,929 |
119 |
||||||
Unrecognized prior service cost |
(4,013) |
- |
919 |
(1,015) |
418 |
(2,805) |
||||||
Unrecognized net loss |
79,185 |
57,089 |
44,723 |
28,429 |
15,620 |
9,699 |
||||||
Prepaid/(accrued) postretirement benefit cost recognized in the balance sheet |
|
|
|
|
|
|
(a) |
Reflects plan design changes, including a change in participation assumption for certain bargaining employees at Entergy Arkansas and Entergy Mississippi, effective January 1, 2004. |
Qualified Pension and Other Postretirement Plans' Assets
Entergy's qualified pension and postretirement plans weighted-average asset allocations by asset category at December 31, 2005 and 2004 are as follows:
|
Pension |
|
Postretirement |
||||
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
Domestic Equity Securities |
45% |
|
46% |
|
37% |
|
38% |
International Equity Securities |
21% |
|
21% |
|
15% |
|
14% |
Fixed-Income Securities |
32% |
|
31% |
|
47% |
|
47% |
Other |
2% |
|
2% |
|
1% |
|
1% |
Entergy's trust asset investment strategy is to invest the assets in a manner whereby long-term earnings on the assets (plus cash contributions) provide adequate funding for retiree benefit payments. The mix of assets is based on an optimization study that identifies asset allocation targets in order to achieve the maximum return for an acceptable level of risk, while minimizing the expected contributions and pension and postretirement expense.
In the optimization study, Entergy formulates assumptions (or hires a consultant to provide such analysis) about characteristics, such as expected asset class investment returns, volatility (risk), and correlation coefficients among the various asset classes. The future market assumptions used in the optimization study are determined by examining historical market characteristics of the various asset classes, and making adjustments to reflect future conditions expected to prevail over the study period.
The optimization analysis utilized in Entergy's latest study produced the following approved asset class target allocations.
|
Pension |
|
Postretirement |
|
|
|
|
Domestic Equity Securities |
45% |
|
37% |
International Equity Securities |
20% |
|
14% |
Fixed-Income Securities |
31% |
|
49% |
Other (Cash and GACs) |
4% |
|
0% |
These allocation percentages combined with each asset class' expected investment return produced an aggregate return expectation for the five years following the study of 7.6% for pension assets, 5.4% for taxable postretirement assets, and 7.2% for non-taxable postretirement assets. These returns are not inconsistent with Entergy's disclosed expected pre-tax return on assets of 8.50% over the life of the respective liabilities.
Since precise allocation targets are inefficient to manage security investments, the following ranges were established to produce an acceptable economically efficient plan to manage to targets:
|
Pension |
|
Postretirement |
|
|
|
|
Domestic Equity Securities |
45% to 55% |
|
32% to 42% |
International Equity Securities |
15% to 25% |
|
9% to 19% |
Fixed-Income Securities |
25% to 35% |
|
44% to 54% |
Other |
0% to 10% |
|
0% to 5% |
Accumulated Pension Benefit Obligation
The qualified pension accumulated benefit obligation for the domestic utility companies and System Entergy as of December 31, 2005 and 2004 was:
|
|
December 31, |
||
|
|
2005 |
|
2004 |
|
|
(In Thousands) |
||
|
|
|
|
|
Entergy Arkansas |
|
$629,791 |
|
$558,283 |
Entergy Gulf States |
|
$501,026 |
|
$449,986 |
Entergy Louisiana |
|
$385,763 |
|
$341,681 |
Entergy Mississippi |
|
$209,638 |
|
$189,119 |
Entergy New Orleans |
|
$79,831 |
|
$69,202 |
System Energy |
|
$92,883 |
|
$79,641 |
Estimated Future Benefit Payments
Based upon the assumptions used to measure the company's qualified pension and postretirement benefit obligation at December 31, 2005, and including pension and postretirement benefits attributable to estimated future employee service, Entergy expects that benefits to be paid over the next ten years and the Medicare Part D subsidies to be received will be as follows:
Estimated Future |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
Year(s) |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$35,826 |
|
$27,916 |
|
$22,362 |
|
$13,068 |
|
$3,710 |
|
$1,926 |
2007 |
|
$36,472 |
|
$28,226 |
|
$22,512 |
|
$13,277 |
|
$3,735 |
|
$1,959 |
2008 |
|
$37,397 |
|
$28,757 |
|
$22,842 |
|
$13,588 |
|
$3,790 |
|
$2,006 |
2009 |
|
$38,698 |
|
$29,535 |
|
$23,346 |
|
$14,030 |
|
$3,873 |
|
$2,074 |
2010 |
|
$40,518 |
|
$30,621 |
|
$24,048 |
|
$14,648 |
|
$3,990 |
|
$2,168 |
2011 - 2015 |
|
$249,558 |
|
$182,418 |
|
$140,036 |
|
$89,367 |
|
$23,236 |
|
$13,294 |
Estimated Future |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
Year(s) |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$14,389 |
|
$13,220 |
|
$9,112 |
|
$4,568 |
|
$4,944 |
|
$1,398 |
2007 |
|
$15,291 |
|
$14,151 |
|
$9,658 |
|
$4,883 |
|
$5,218 |
|
$1,514 |
2008 |
|
$15,856 |
|
$14,759 |
|
$10,049 |
|
$5,111 |
|
$5,411 |
|
$1,594 |
2009 |
|
$16,337 |
|
$15,153 |
|
$10,310 |
|
$5,259 |
|
$5,562 |
|
$1,699 |
2010 |
|
$16,794 |
|
$15,444 |
|
$10,565 |
|
$5,472 |
|
$5,654 |
|
$1,870 |
2011 - 2015 |
|
$85,513 |
|
$81,011 |
|
$54,627 |
|
$29,405 |
|
$27,895 |
|
$11,227 |
Estimated Future |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
Year(s) |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$1,257 |
|
$1,160 |
|
$739 |
|
$501 |
|
$589 |
|
$53 |
2007 |
|
$1,434 |
|
$1,320 |
|
$847 |
|
$564 |
|
$647 |
|
$70 |
2008 |
|
$1,605 |
|
$1,470 |
|
$945 |
|
$625 |
|
$692 |
|
$91 |
2009 |
|
$1,745 |
|
$1,604 |
|
$1,031 |
|
$682 |
|
$721 |
|
$109 |
2010 |
|
$1,864 |
|
$1,719 |
|
$1,105 |
|
$722 |
|
$738 |
|
$122 |
2011 - 2015 |
|
$11,653 |
|
$10,536 |
|
$6,816 |
|
$4,310 |
|
$3,953 |
|
$1,064 |
Contributions
The domestic utility companies and System Energy expect to contribute the following to the pension and other postretirement plans in 2006:
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Pension Contributions delayed until 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
2006 Expected Pension Contributions |
|
|
|
|
|
|
|
|
|
|
|
|
Total Projected 2006 Pension Contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement |
|
|
|
|
|
|
|
|
|
|
|
|
Additional Information
The change in the qualified pension plans' minimum pension liability had no effect on other comprehensive income at the domestic utility companies and System Energy in 2004. Accumulated other comprehensive income increased by $1.9 million at Entergy Gulf States in 2005. The change in the minimum pension liability included in regulatory assets at each of the domestic utility companies and System Energy was as follows for 2005 and 2004:
|
Entergy Arkansas |
Entergy Gulf States |
Entergy |
Entergy |
Entergy |
System |
||||||
(In Thousands) |
||||||||||||
2005 |
$67,191 |
$11,199 |
$37,959 |
$20,308 |
$8,067 |
$4,635 |
||||||
2004 |
$29,191 |
$- |
$34,112 |
$13,820 |
$4,865 |
$370 |
Actuarial Assumptions
The assumed health care cost trend rate used in measuring the APBO of the domestic utility companies and System Energy was 12% for 2006, gradually decreasing each successive year until it reaches 4.5% in 2012 and beyond. The assumed health care cost trend rate used in measuring the Net Other Postretirement Benefit Cost of the domestic utility companies and System Energy was 10% for 2005, gradually decreasing each successive year until it reaches 4.5% in 2011 and beyond. A one percentage point change in the assumed health care cost trend rate for 2005 would have the following effects:
|
|
1 Percentage Point Increase |
|
1 Percentage Point Decrease |
||||
2005 |
|
|
|
Impact on the |
|
|
|
Impact on the |
|
|
Increase (Decrease) |
||||||
|
|
|
|
|
|
|
|
|
Entergy Arkansas |
|
$16,650 |
|
$1,727 |
|
($15,366) |
|
($1,534) |
Entergy Gulf States |
|
$18,808 |
|
$2,141 |
|
($17,132) |
|
($1,861) |
Entergy Louisiana |
|
$11,152 |
|
$1,148 |
|
($10,271) |
|
($1,016) |
Entergy Mississippi |
|
$5,490 |
|
$545 |
|
($5,069) |
|
($486) |
Entergy New Orleans |
|
$4,389 |
|
$392 |
|
($4,091) |
|
($352) |
System Energy |
|
$3,309 |
|
$531 |
|
($2,962) |
|
($454) |
The significant actuarial assumptions used in determining the pension PBO and the SFAS 106 APBO as of December 31, 2005, 2004, and 2003 were as follows:
2005 |
|
2004 |
|
2003 |
|
Weighted-average discount rate: |
|
|
|
|
|
Pension |
5.90% |
|
6.00% |
|
6.25% |
Other postretirement |
5.90% |
|
6.00% |
|
6.71% |
Weighted-average
rate of increase in future compensation levels |
|
|
|
|
|
he significant actuarial assumptions used in determining the net periodic pension and other postretirement benefit costs for 2005, 2004, and 2003 were as follows:
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Weighted-average discount rate | |||||
Pension |
6.00% |
|
6.25% |
|
6.75% |
Other postretirement |
6.00% |
6.71% |
6.75% |
||
Weighted-average
rate of increase in future compensation levels |
|
|
|
|
|
Expected long-term
rate of return on plan assets: |
|
|
|
|
|
Taxable assets |
5.50% |
|
5.50% |
|
5.50% |
Non-taxable assets |
8.50% |
|
8.75% |
|
8.75% |
The domestic utility companies' and System Energy's remaining pension transition assets are being amortized over the greater of the remaining service period of active participants or 15 years which ended in 2005, and their SFAS 106 transition obligations are being amortized over 20 years ending in 2012.
Voluntary Severance Program
In the second half of 2003, the domestic utility companies and System Energy offered a voluntary severance program to certain groups of employees. As a result of this program, in the fourth quarter 2003 the domestic utility companies and System Energy recorded additional pension and postretirement costs (including amounts capitalized) of $53.9 million for special termination benefits and plan curtailment charges. These amounts are included in the net pension cost and net postretirement benefit cost for the year ended December 31, 2003.
Medicare Prescription Drug, Improvement and Modernization Act of 2003
In December 2003, the President signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 into law. The Act introduces a prescription drug benefit under Medicare (Part D), starting in 2006, as well as a federal subsidy to employers who provide a retiree prescription drug benefit that is at least actuarially equivalent to Medicare Part D.
The actuarially estimated effect of future Medicare subsidies was as follows:
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
Arkansas |
|
Gulf States |
|
Louisiana |
|
Mississippi |
|
New Orleans |
|
Energy |
|
|
Increase (Decrease) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on 12/31/2005 APBO |
|
($42,337) |
|
($36,740) |
|
($23,640) |
|
($14,407) |
|
($11,206) |
|
($5,972) |
Impact on 12/31/2004 APBO |
|
($35,928) |
|
($31,846) |
|
($20,085) |
|
($12,227) |
|
($9,742) |
|
($4,982) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on 2005 other |
|
|
|
|
|
|
|
|
|
|
|
|
Impact on 2004 other |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified Pension Plans
Entergy's domestic utility companies participate in Entergy's non-qualified, non-contributory defined benefit pension plans that provide benefits to certain executives. There are $0.4 million in plan assets for a pre-merger Entergy Gulf States plan. The net periodic pension cost for the non-qualified plans for 2005, 2004 and 2003 was as follows:
|
Entergy Arkansas |
Entergy |
Entergy |
Entergy |
Entergy |
|||||
(In Thousands) |
||||||||||
2005 |
$508 |
$1,316 |
$27 |
$170 |
$204 |
|||||
2004 |
$510 |
$1,268 |
$27 |
$132 |
$190 |
|||||
2003 |
$372 |
$1,307 |
$21 |
$142 |
$144 |
The projected benefit obligation for the non-qualified plans as of December 31, 2005 and 2004 was as follows:+
|
Entergy Arkansas |
Entergy |
Entergy |
Entergy |
Entergy |
|||||
(In Thousands) |
||||||||||
2005 |
$3,760 |
$19,188 |
$187 |
$1,467 |
$1,652 |
|||||
2004 |
$3,785 |
$18,707 |
$220 |
$1,139 |
$1,925 |
The accumulated benefit obligation for the non-qualified plans as of December 31, 2005 and 2004 was as follows:
|
Entergy |
Entergy |
Entergy |
Entergy |
Entergy |
|||||
(In Thousands) |
||||||||||
2005 |
$3,545 |
$19,108 |
$187 |
$1,316 |
$1,466 |
|||||
2004 |
$3,726 |
$19,419 |
$199 |
$1,328 |
$1,347 |
The additional minimum pension liability as of December 31, 2005 was as follows:
Entergy Arkansas |
Entergy Gulf States |
Entergy |
Entergy |
Entergy |
||||||
(In Thousands) |
||||||||||
Additional minimum pension liability |
|
|
|
|
|
|||||
Intangible asset |
$381 |
$137 |
$28 |
$47 |
$47 |
|||||
Regulatory asset |
$1,275 |
$3,163 |
$69 |
$615 |
$501 |
|||||
Accumulated other comprehensive income (before taxes) |
|
|
|
|
|
NOTE 11. RISK MANAGEMENT AND DERIVATIVES
Market and Commodity Risks
In the normal course of business, the domestic utility companies and System Energy are exposed to a number of market and commodity risks including power price risk, fuel price risk, foreign currency exchange rate risk, and equity price and interest rate risks. Market risk is the potential loss that the domestic utility companies and System Energy may incur as a result of changes in the market or fair value of a particular instrument or commodity. All financial and commodity-related instruments, including derivatives, are subject to market risk.
The domestic utility companies and System Energy manage these risks through both contractual arrangements and derivatives. Contractual risk management tools include long-term power and fuel purchase agreements. The domestic utility companies and System Energy also use a variety of commodity and financial derivatives, including natural gas and electricity futures, forwards and options, and foreign currency forwards to manage the following risks:
Gains and losses realized from derivative transactions used to manage power and fuel price risk are included in fuel costs recovered through rates. Accordingly, these gains and losses are accounted for as regulatory assets and liabilities prior to transaction maturity. Power price risk is managed primarily through the purchase of short-term forward contracts that are accounted for as normal purchases. Any option premiums paid to manage power price risk are booked with an offsetting regulatory asset or liability. The volume of these purchases is based on Entergy's demand forecast.
Entergy manages fuel price risk for its Louisiana jurisdictions (Entergy Louisiana, Entergy New Orleans, and the Louisiana portion of Entergy Gulf States) and Entergy Mississippi primarily through the purchase of short-term swaps. These swaps are marked-to-market with offsetting regulatory assets or liabilities. The notional volumes of these swaps are based on a portion of projected purchases of gas for the summer (electric generation) and winter (gas distribution at Entergy Gulf States and Entergy New Orleans) peak seasons.
Entergy Gulf States manages foreign currency exchange rate risk associated with the acquisition of nuclear fuel through the purchase of forwards that are accounted for as cash flow hedges. The notional volumes of these forwards are based on forecasted purchases and the realized gain or loss from these forwards is included in the capitalized cost of the applicable batches of nuclear fuel. Gains totaling approximately $6.4 million were realized during 2004 on the maturity of cash flow hedges. These realized gains resulted from foreign currency hedges related to Euro-denominated nuclear fuel acquisition contracts, and related gains or losses, when realized, are included in the capitalized cost of nuclear fuel. The ineffective portion of the change in the value of Entergy Gulf States' cash flow hedges during 2004 was insignificant. Entergy Gulf States had no outstanding cash flow hedges during the year ended December 31, 2005.
NOTE 12. DECOMMISSIONING TRUST FUNDS
Entergy Arkansas
Entergy Arkansas holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts. The securities held at December 31, 2005 and 2004 are summarized as follows:
|
|
Fair |
|
Total |
|
Total |
|
|
(In Millions) |
||||
2005 |
|
|
|
|
|
|
Equity |
|
$205.6 |
|
$78.8 |
|
$0.8 |
Debt Securities |
|
196.5 |
|
1.1 |
|
2.6 |
Total |
|
$402.1 |
|
$79.9 |
|
$3.4 |
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
Equity |
|
$189.5 |
|
$66.6 |
|
$1.6 |
Debt Securities |
|
194.3 |
|
4.3 |
|
1.9 |
Total |
|
$383.8 |
|
$70.9 |
|
$3.5 |
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at December 31, 2005:
|
|
Equity Securities |
|
Debt Securities |
||||
|
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
|
(In Millions) |
||||||
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
$0.2 |
|
$- |
|
$102.4 |
|
$1.6 |
More than 12 months |
|
9.7 |
|
0.8 |
|
28.8 |
|
1.0 |
Total |
|
$9.9 |
|
$0.8 |
|
$131.2 |
|
$2.6 |
The fair value of debt securities, summarized by contractual maturities, at December 31, 2005 and 2004 are as follows:
|
|
2005 |
|
2004 |
|
|
(In Millions) |
||
|
|
|
|
|
less than 1 year |
|
$6.3 |
|
$32.5 |
1 year - 5 years |
|
71.9 |
|
128.3 |
5 years - 10 years |
|
112.6 |
|
30.2 |
10 years - 15 years |
|
2.2 |
|
3.3 |
15 years - 20 years |
|
- |
|
- |
20 years+ |
|
3.5 |
|
- |
Total |
|
$196.5 |
|
$194.3 |
During the year ended December 31, 2005, the proceeds from the dispositions of securities amounted to $19.5 million with gross gains of $250,970 and gross losses of $899,665. During the year ended December 31, 2004, the proceeds from the dispositions of securities amounted to $1.7 million with gross gains of $17,098 and gross losses of $18,274.
Entergy Gulf States
Entergy Gulf States holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts. The securities held at December 31, 2005 and 2004 are summarized as follows:
|
|
Fair |
|
Total |
|
Total |
|
|
(In Millions) |
||||
2005 |
|
|
|
|
|
|
Equity |
|
$153.6 |
|
$28.7 |
|
$0.3 |
Debt Securities |
|
157.2 |
|
6.9 |
|
0.5 |
Total |
|
$310.8 |
|
$35.6 |
|
$0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
Equity |
|
$138.1 |
|
$20.4 |
|
$0.8 |
Debt Securities |
|
152.9 |
|
8.8 |
|
0.2 |
Total |
|
$291.0 |
|
$29.2 |
|
$1.0 |
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at December 31, 2005:
|
|
Equity Securities |
|
Debt Securities |
||||
|
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
|
(In Millions) |
||||||
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
$0.6 |
|
$- |
|
$15.9 |
|
$0.2 |
More than 12 months |
|
5.1 |
|
0.3 |
|
0.1 |
|
0.3 |
Total |
|
$5.7 |
|
$0.3 |
|
$16.0 |
|
$0.5 |
The fair value of debt securities, summarized by contractual maturities, at December 31, 2005 and 2004 are as follows:
|
|
2005 |
|
2004 |
|
|
(In Millions) |
||
|
|
|
|
|
less than 1 year |
|
$7.7 |
|
$8.7 |
1 year - 5 years |
|
49.0 |
|
42.0 |
5 years - 10 years |
|
50.1 |
|
51.3 |
10 years - 15 years |
|
35.4 |
|
37.7 |
15 years - 20 years |
|
12.2 |
|
11.0 |
20 years+ |
|
2.8 |
|
2.2 |
Total |
|
$157.2 |
|
$152.9 |
During the year ended December 31, 2005, the proceeds from the dispositions of securities amounted to $6.1 million with gross gains of $205,683 and gross losses of $320,003. During the year ended December 31, 2004, the proceeds from the dispositions of securities amounted to $2.9 million with gross gains of $790 and gross losses of $98,852.
Entergy Louisiana
Entergy Louisiana holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts. The securities held at December 31, 2005 and 2004 are summarized as follows:
|
|
Fair |
|
Total |
|
Total |
|
|
(In Millions) |
||||
2005 |
|
|
|
|
|
|
Equity |
|
$105.8 |
|
$23.6 |
|
$1.6 |
Debt Securities |
|
81.3 |
|
2.2 |
|
0.8 |
Total |
|
$187.1 |
|
$25.8 |
|
$2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
Equity |
|
$92.5 |
|
$17.1 |
|
$2.5 |
Debt Securities |
|
79.6 |
|
2.8 |
|
0.8 |
Total |
|
$172.1 |
|
$19.9 |
|
$3.3 |
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at December 31, 2005:
|
|
Equity Securities |
|
Debt Securities |
||||
|
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
|
(In Millions) |
||||||
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
$0.2 |
|
$- |
|
$33.1 |
|
$0.6 |
More than 12 months |
|
13.8 |
|
1.6 |
|
5.2 |
|
0.2 |
Total |
|
$14.0 |
|
$1.6 |
|
$38.3 |
|
$0.8 |
The fair value of debt securities, summarized by contractual maturities, at December 31, 2005 and 2004 are as follows:
|
|
2005 |
|
2004 |
|
|
(In Millions) |
||
|
|
|
|
|
less than 1 year |
|
$15.6 |
|
$38.8 |
1 year - 5 years |
|
15.5 |
|
17.6 |
5 years - 10 years |
|
22.1 |
|
12.4 |
10 years - 15 years |
|
12.3 |
|
4.8 |
15 years - 20 years |
|
12.9 |
|
6.0 |
20 years+ |
|
2.9 |
|
- |
Total |
|
$81.3 |
|
$79.6 |
During the year ended December 31, 2005, the proceeds from the dispositions of securities amounted to $3.0 million with gross gains of $99,390 and gross losses of $174,179. During the year ended December 31, 2004, the proceeds from the dispositions of securities amounted to $4.3 million with gross gains of $244,250 and gross losses of $25,882.
System Energy
System Energy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts. The securities held at December 31 2005 and 2004 are summarized as follows:
|
|
Fair |
|
Total |
|
Total |
|
|
(In Millions) |
||||
2005 |
|
|
|
|
|
|
Equity |
|
$142.9 |
|
$22.3 |
|
$4.5 |
Debt Securities |
|
93.1 |
|
1.2 |
|
1.1 |
Total |
|
$236.0 |
|
$23.5 |
|
$5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
Equity |
|
$127.0 |
|
$15.0 |
|
$7.2 |
Debt Securities |
|
78.1 |
|
1.9 |
|
0.6 |
Total |
|
$205.1 |
|
$16.9 |
|
$7.8 |
The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows at December 31, 2005:
|
|
Equity Securities |
|
Debt Securities |
||||
|
|
Fair |
|
Gross |
|
Fair |
|
Gross |
|
|
(In Millions) |
||||||
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
$0.3 |
|
$- |
|
$50.6 |
|
$0.8 |
More than 12 months |
|
42.6 |
|
4.5 |
|
13.7 |
|
0.3 |
Total |
|
$42.9 |
|
$4.5 |
|
$64.3 |
|
$1.1 |
The fair value of debt securities, summarized by contractual maturities, at December 31, 2005 and 2004 are as follows:
|
|
2005 |
|
2004 |
|
|
(In Millions) |
||
|
|
|
|
|
less than 1 year |
|
$9.8 |
|
$4.8 |
1 year - 5 years |
|
32.5 |
|
22.4 |
5 years - 10 years |
|
20.7 |
|
30.0 |
10 years - 15 years |
|
6.2 |
|
7.9 |
15 years - 20 years |
|
3.4 |
|
6.9 |
20 years+ |
|
20.5 |
|
6.1 |
Total |
|
$93.1 |
|
$78.1 |
During the year ended December 31, 2005, the proceeds from the dispositions of securities amounted to $8.6 million and gross gains of $148,293 and gross losses of $471,952. During the year ended December 31, 2004, the proceeds from the dispositions of securities amounted to $7.5 million with gross gains of $32,362 and gross losses of $58,755.
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy evaluate unrealized gains and losses at the end of each period to determine whether an other than temporary impairment has occurred. This analysis considers the length of time that a security has been in a loss position, the current performance of that security, and whether decommissioning costs are recovered in rates. No significant impairments were recorded in 2005 and 2004 as a result of these evaluations.
Due to the regulatory treatment of decommissioning collections and trust fund earnings, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy record regulatory assets or liabilities for unrealized gains and losses on trust investments. For the unregulated portion of River Bend, Entergy Gulf States has recorded an offsetting amount of unrealized gains or losses in other deferred credits.
NOTE 13. TRANSACTIONS WITH AFFILIATES (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Each domestic utility company purchases electricity from and sells electricity to the other domestic utility companies and System Energy under rate schedules filed with FERC. The domestic utility companies and System Energy purchase fuel from System Fuels; receive management, technical, advisory, operating, and administrative services from Entergy Services; and receive management, technical, and operating services from Entergy Operations. These transactions are on an "at cost" basis. In addition, Entergy Power sells electricity to Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans, and RS Cogen sells electricity to Entergy Louisiana and Entergy New Orleans.
As described in Note 1 to the domestic utility companies and System Energy financial statements, all of System Energy's operating revenues consist of billings to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
Additionally, as described in Note 4 to the domestic utility companies and System Energy financial statements, the domestic utility companies and System Energy participate in the Entergy's money pool and earn interest income from the money pool. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans also receive interest income from System Fuels, Inc.
The tables below contain the various affiliate transactions of the domestic utility companies, System Energy, and other Entergy affiliates.
Intercompany Revenues
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Millions) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$197.7 |
|
$186.7 |
|
$342.4 |
|
$69.2 |
|
$117.6 |
|
$533.9 |
2004 |
|
$256.8 |
|
$52.5 |
|
$96.6 |
|
$47.6 |
|
$117.8 |
|
$545.4 |
2003 |
|
$242.3 |
|
$42.8 |
|
$102.4 |
|
$27.6 |
|
$85.5 |
|
$583.8 |
Intercompany Operating Expenses
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
|
|
(In Millions) |
||||||||
|
|
(1) |
|
|
|
(2) |
|
|
|
(3) |
|
|
2005 |
|
$670.0 |
|
$546.5 |
|
$606.4 |
|
$520.2 |
|
$260.2 |
|
$102.9 |
2004 |
|
$467.5 |
|
$558.2 |
|
$491.8 |
|
$484.4 |
|
$228.4 |
|
$109.4 |
2003 |
|
$460.6 |
|
$438.6 |
|
$444.6 |
|
$458.6 |
|
$211.2 |
|
$118.0 |
(1) |
Includes $1.9 million in 2005, $2.3 million in 2004, and $0.1 million in 2003 for power purchased from Entergy Power. |
(2) |
Includes power purchased from Entergy Power and RS Cogen LLC in 2005 of $8.4 million and $48.8 million, respectively, in 2004 of $9.1 million and $33.0 million, respectively, and in 2003 of $5.9 million and $19.1 million, respectively. |
(3) |
Includes power purchased from Entergy Power and RS Cogen LLC in 2005 of $8.3 million and $12.6 million, respectively, in 2004 of $9.0 million and $10.6 million, respectively, and in 2003 of $5.7 million and $6.9 million, respectively. |
Intercompany Interest Income
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Millions) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$2.0 |
|
$0.1 |
|
$1.5 |
|
$1.0 |
|
$0.2 |
|
$4.2 |
2004 |
|
$0.6 |
|
$0.4 |
|
$1.1 |
|
$0.6 |
|
$0.2 |
|
$0.6 |
2003 |
|
$0.6 |
|
$0.4 |
|
$1.2 |
|
$0.3 |
|
$0.2 |
|
$0.1 |
NOTE 14. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
On September 23, 2005, Entergy New Orleans filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Louisiana seeking reorganization relief under the provisions of Chapter 11 of the United States Bankruptcy Code (Case No. 05-17697). Entergy New Orleans continues to operate its business as a debtor-in-possession under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the bankruptcy court.
On September 26, 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility to provide funding to Entergy New Orleans during its business restoration efforts. The facility provides the ability for Entergy New Orleans to request funding from Entergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. On December 9, 2005, the bankruptcy court issued its order giving final approval for a $200 million debtor-in-possession credit facility and the priority and lien status of the indebtedness under the DIP credit agreement. The indenture trustee of Entergy New Orleans' first mortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee filing its notice of appeal, Entergy New Orleans, Entergy Corporation, and the indenture trustee filed with the bankruptcy court a motion to approve a settlement among the parties. The settlement would result in the dismissal of the indenture trustee's appeal. The settlement is set for hearing in the bankruptcy court on March 22, 2006. The DIP credit agreement is discussed in further detail in the Note 4 to the domestic utility companies and System Energy financial statements. The bankruptcy court has also issued orders allowing Entergy New Orleans to pay certain pre-petition vendors deemed critical to its restoration efforts and allowing Entergy New Orleans to pay certain pre-petition wages, employee benefits, and employment-related taxes.
The accompanying financial statements have been prepared on the basis that Entergy New Orleans will continue as a going concern. Entergy New Orleans' filing for protection under Chapter 11 of the United States Bankruptcy Code as a result of the liquidity issues caused by Hurricane Katrina give rise to substantial doubt regarding Entergy New Orleans' ability to continue as a going concern for a reasonable period of time, primarily because of the loss of control inherent in the bankruptcy process. The financial statements do not include any adjustments that might result from the outcome of this uncertainty including adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary if Entergy New Orleans is unable to continue as a going concern. The financial statements also do not attempt to reflect liabilities at the priority or status of any claims that the holders of such liabilities will have.
Entergy continues to work with the federal, state, and local authorities to resolve the bankruptcy in a manner that allows Entergy New Orleans' customers to be served by a financially viable entity as required by law. Key factors that will influence the timing and outcome of the Entergy New Orleans bankruptcy include:
The exclusivity period for filing a final plan of reorganization by Entergy New Orleans is currently scheduled to end on April 21, 2006, with solicitation of acceptances of the plan scheduled to be complete by June 20, 2006. If a party to the bankruptcy proceeding, including Entergy New Orleans, requests it, the bankruptcy court has the authority to extend these deadlines. In addition, the bankruptcy judge has set a date of April 19, 2006 by which creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file their proofs of claim in the bankruptcy case.
Certain pre-petition liabilities have been classified as liabilities subject to compromise in Entergy New Orleans' Balance Sheet as of December 31, 2005. The following table summarizes the components of liabilities subject to compromise as of December 31, 2005:
Amount |
||
(In Thousands) |
||
Accounts payable - Associated companies |
$46,815 |
|
Accounts payable - Other |
25,000 |
|
Interest accrued |
1,473 |
|
Accumulated provisions |
5,770 |
|
Long-term debt |
229,859 |
|
Total Liabilities Subject to Compromise |
$308,917 |
Payment terms for the amount classified as subject to compromise will be established in connection with a plan of reorganization.
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED) (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The business of the domestic utility companies and System Energy is subject to seasonal fluctuations with the peak periods occurring during the third quarter. Operating results for the four quarters of 2005 and 2004 were:
Operating Revenue
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$367,360 |
|
$679,250 |
|
$480,673 |
|
$251,246 |
|
$191,267 |
|
$124,790 |
Second Quarter |
|
$450,097 |
|
$759,519 |
|
$647,748 |
|
$288,244 |
|
$189,927 |
|
$126,364 |
Third Quarter |
|
$556,445 |
|
$971,840 |
|
$760,916 |
|
$406,765 |
|
$189,593 |
|
$140,583 |
Fourth Quarter |
|
$415,153 |
|
$956,562 |
|
$760,844 |
|
$360,288 |
|
$102,539 |
|
$142,192 |
2004: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$363,461 |
|
$638,996 |
|
$488,046 |
|
$236,829 |
|
$169,767 |
|
$127,168 |
Second Quarter |
|
$405,509 |
|
$685,313 |
|
$555,511 |
|
$289,573 |
|
$186,337 |
|
$132,720 |
Third Quarter |
|
$481,103 |
|
$840,630 |
|
$668,240 |
|
$390,337 |
|
$200,036 |
|
$144,052 |
Fourth Quarter |
|
$403,072 |
|
$717,445 |
|
$515,189 |
|
$296,890 |
|
$179,728 |
|
$141,441 |
Operating Income (Loss)
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$61,847 |
|
$47,343 |
|
$16,730 |
|
$18,772 |
|
$12,521 |
|
$54,606 |
Second Quarter |
|
$87,109 |
|
$91,998 |
|
$140,802 |
|
$35,793 |
|
$17,934 |
|
$53,259 |
Third Quarter |
|
$157,130 |
|
$179,272 |
|
$89,913 |
|
$62,915 |
|
$13,950 |
|
$57,034 |
Fourth Quarter |
|
$9,861 |
|
$72,747 |
|
$33,689 |
|
$15,209 |
|
($31,333) |
|
$58,511 |
2004: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$48,566 |
|
$88,312 |
|
$48,318 |
|
$22,724 |
|
$15,487 |
|
$57,767 |
Second Quarter |
|
$80,669 |
|
$101,832 |
|
$84,357 |
|
$42,157 |
|
$22,880 |
|
$59,585 |
Third Quarter |
|
$123,910 |
|
$127,838 |
|
$87,130 |
|
$52,003 |
|
$24,450 |
|
$59,601 |
Fourth Quarter |
|
$40,590 |
|
$41,437 |
|
$41,710 |
|
$29,730 |
|
($4,878) |
|
$56,181 |
Net Income (Loss)
|
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
Entergy |
|
System |
|
|
(In Thousands) |
||||||||||
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$31,931 |
|
$23,349 |
|
$1,771 |
|
$7,222 |
|
$5,736 |
|
$26,232 |
Second Quarter |
|
$48,290 |
|
$44,287 |
|
$74,163 |
|
$17,719 |
|
$8,374 |
|
$25,925 |
Third Quarter |
|
$92,368 |
|
$105,060 |
|
$42,860 |
|
$33,327 |
|
$6,417 |
|
$26,920 |
Fourth Quarter |
|
$2,046 |
|
$33,801 |
|
$9,288 |
|
$3,835 |
|
($19,277) |
|
$32,567 |
2004: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$19,276 |
|
$41,728 |
|
$21,211 |
|
$8,637 |
|
$7,114 |
|
$24,664 |
Second Quarter |
|
$43,277 |
|
$55,591 |
|
$43,713 |
|
$20,808 |
|
$12,319 |
|
$25,532 |
Third Quarter |
|
$67,944 |
|
$82,456 |
|
$45,496 |
|
$27,873 |
|
$13,189 |
|
$27,505 |
Fourth Quarter |
|
$11,713 |
|
$12,489 |
|
$17,075 |
|
$16,179 |
|
($4,550) |
|
$28,247 |
Item 2. Properties
Information regarding the registrant's properties is included in Part I. Item 1. - Business under the sections titled "Property" in this report.
Item 3. Legal Proceedings
Details of the registrant's material environmental regulation and proceedings and other regulatory proceedings and litigation that are pending or those terminated in the fourth quarter of 2005 are discussed in Part I. Item 1. - Business under the sections titled "Retail Rate Regulation", "Environmental Regulation", and "Litigation" in this report.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 2005, no matters were submitted to a vote of the security holders of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy Resources.
DIRECTORS AND EXECUTIVE OFFICERS OF ENTERGY CORPORATION
Directors
Information required by this item concerning directors of Entergy Corporation is set forth under the heading "Proposal 1--Election of Directors" contained in the Proxy Statement of Entergy Corporation, (the "Proxy Statement"), to be filed in connection with its Annual Meeting of Stockholders to be held May 12, 2006, ("Annual Meeting"), and is incorporated herein by reference. Information required by this item concerning officers and directors of the remaining registrants is reported in Part III of this document.
Executive Officers
Name |
Age |
Position |
Period |
|
J. Wayne Leonard (a) |
55 |
Chief Executive Officer and Director of Entergy Corporation |
1999-Present |
|
Richard J. Smith (a) |
54 |
Group President, Utility Operations of Entergy Corporation, |
2001-Present |
|
Director of Entergy Arkansas, Entergy Gulf States, Entergy |
2001-Present |
|||
Director of Entergy New Orleans |
2001-2005 |
|||
Senior Vice President, Transition Management of Entergy |
2000-2001 |
|||
Leo P. Denault (a) |
46 |
Executive Vice President and Chief Financial Officer of |
2004-Present |
|
Director of Entergy Arkansas, Entergy Gulf States, Entergy |
2004-Present |
|||
Director of Entergy New Orleans |
2004-2005 |
|||
Vice President , Corporate Development and Strategic |
1999-2004 |
|||
Curtis L. Hebert, Jr. (a) |
43 |
Executive Vice President, External Affairs of Entergy |
2001-Present |
|
Chairman and Commissioner of the Federal Energy |
1997-2001 |
|||
Mark T. Savoff (a) |
49 |
Executive Vice President of Entergy Corporation |
2004-Present |
|
Director of Entergy Arkansas, Entergy Gulf States, Entergy |
2004-Present |
|||
Director of Entergy New Orleans |
2004-2005 |
|||
Executive Vice President of Entergy Services, Inc. |
2003-Present |
|||
President, General Electric Power Systems - GE Nuclear |
2000-2003 |
|||
Robert D. Sloan (a) |
58 |
Executive Vice President, General Counsel and Secretary of |
2004-Present |
|
Senior Vice President, General Counsel and Secretary of |
2003-2004 |
|||
Vice President, General Counsel of GE Industrial Systems, |
1998-2003 |
|||
Gary J. Taylor (a) |
52 |
Executive Vice President and Chief Nuclear Officer of |
2004-Present |
|
Director, President and Chief Executive Officer of System |
2003-Present |
|||
Senior Vice President and Chief Operating Officer of |
2000-2003 |
|||
Nathan E. Langston (a) |
57 |
Senior Vice President and Chief Accounting Officer of |
2001-Present |
|
Vice President and Chief Accounting Officer of Entergy |
1998-2001 |
|||
William E. Madison (a) |
59 |
Senior Vice President - Human Resources and |
2002-Present |
|
Senior Vice President - Human Resources and |
2001-Present |
|||
Senior Vice President & Chief Human Resources Officer, |
2000-2001 |
|||
(a) |
In addition, this officer is an executive officer and/or director of various other wholly owned subsidiaries of Entergy Corporation and its operating companies. |
Each officer of Entergy Corporation is elected yearly by the Board of Directors.
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
Entergy Corporation
The shares of Entergy Corporation's common stock are listed on the New York Stock, Chicago Stock, and Pacific Exchanges under the ticker symbol ETR.
Entergy Corporation's stock price as of February 28, 2006 was $72.51. The high and low prices of Entergy Corporation's common stock for each quarterly period in 2005 and 2004 were as follows:
2005 |
2004 |
||||||
High |
Low |
High |
Low |
||||
(In Dollars) |
|||||||
First |
72.00 |
64.48 |
60.20 |
56.01 |
|||
Second |
76.60 |
69.35 |
59.92 |
50.64 |
|||
Third |
79.22 |
70.52 |
61.98 |
54.43 |
|||
Fourth |
76.42 |
67.00 |
68.67 |
60.08 |
Consecutive quarterly cash dividends on common stock were paid to stockholders of Entergy Corporation in 2005 and 2004. Quarterly dividends of $0.54 per share were paid in 2005. In 2004, dividends of $0.45 per share were paid in the first three quarters, and a dividend of $0.54 per share was paid in the fourth quarter.
As of February 28, 2006, there were 48,761 stockholders of record of Entergy Corporation.
Entergy Corporation's future ability to pay dividends is discussed in Note 7 to the consolidated financial statements.
Unregistered Sales of Equity Securities and Use Of Proceeds
Issuer Purchases of Equity Securities
In accordance with Entergy's stock-based compensation plans, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy's common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. See Note 7 to the consolidated financial statements for additional discussion of the stock-based compensation plans. Entergy's management has been authorized to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans, and this authorization does not have an expiration date. In August 2004, Entergy announced a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. The program extended originally through the end of 2006, but, due to the effects of Hurricanes Katrina and Rita, the program was suspended, and the Board has authorized the extension of the program through 2008. This repurc hase program is incremental to the existing authority to repurchase shares to fund the exercise of employee stock options. The amount of repurchases under the program may vary as a result of material changes in business results or capital spending, or as a result of material new investment opportunities.
During the fourth quarter of 2005, Entergy did not repurchase any shares of its common stock. The amount of shares that may yet be purchased under the Entergy Corporation plan to repurchase up to $1.5 billion of its common stock was $400 million as of December 31, 2005.
Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy
There is no market for the common stock of Entergy Corporation's wholly owned subsidiaries. Cash dividends on common stock paid by the domestic utility companies and System Energy to Entergy Corporation during 2005 and 2004, were as follows:
2005 |
2004 |
|||
(In Millions) |
||||
Entergy Arkansas |
$64.1 |
$85.8 |
||
Entergy Gulf States |
$61.9 |
$94.3 |
||
Entergy Louisiana |
$51.6 |
$116.5 |
||
Entergy Mississippi |
$21.9 |
$46.8 |
||
Entergy New Orleans |
$5.3 |
$5.2 |
||
System Energy |
$112.6 |
$104.6 |
Information with respect to restrictions that limit the ability of the domestic utility companies and System Energy to pay dividends is presented in Note 7 to the domestic utility companies and System Energy financial statements.
Item 6. Selected Financial Data
Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC., ENTERGY LOUISIANA HOLDINGS, INC., ENTERGY LOUISIANA, LLC, ENTERGY MISSISSIPPI, INC., ENTERGY NEW ORLEANS, INC., and SYSTEM ENERGY RESOURCES, INC." which follow each company's financial statements in this report, for information with respect to selected financial data and certain operating statistics.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC., ENTERGY LOUISIANA HOLDINGS, INC. AND ENTERGY LOUISIANA, LLC, ENTERGY MISSISSIPPI, INC., ENTERGY NEW ORLEANS, INC., and SYSTEM ENERGY RESOURCES, INC."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Significant Factors and Known Trends - Market and Credit Risks OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC., ENTERGY LOUISIANA HOLDINGS, INC. AND ENTERGY LOUISIANA, LLC, ENTERGY MISSISSIPPI, INC., ENTERGY NEW ORLEANS, INC., and SYSTEM ENERGY RESOURCES, INC."
Item 8. Financial Statements and Supplementary Data
Refer to "TABLE OF CONTENTS - Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana Holdings, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc."
Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure.
No event that would be described in response to this item has occurred with respect to Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, or System Energy.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2005, evaluations were performed under the supervision and with the participation of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy (individually "Registrant" and collectively the "Registrants") management, including their respective Chief Executive Officers (CEO) and Chief Financial Officers (CFO). The evaluations assessed the effectiveness of the Registrants' disclosure controls and procedures. Based on the evaluations, each CEO and CFO has concluded that, as to the Registrant or Registrants for which they serve as CEO or CFO, the Registrants' disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commiss ion rules and forms.
Internal Control over Financial Reporting
The managements of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy Resources (individually "Registrant" and collectively the "Registrants") are responsible for establishing and maintaining adequate internal control over financial reporting for the Registrants. Each Registrant's internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of each Registrant's financial statements presented in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Each Registrant's management assessed the effectiveness of each Registrant's internal control over financial reporting as of December 31, 2005. In making this assessment, each management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.
Based on each management's assessment and the criteria set forth by COSO, each Registrant's management believes that each Registrant maintained effective internal control over financial reporting as of December 31, 2005.
The Registrants' registered public accounting firm has issued an attestation report on each management's assessment of each Registrant's internal control over financial reporting.
Attestation Report of Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Corporation and Subsidiaries
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy Corporation and Subsidiaries (the "Corporation") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Corporation's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Corporation maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of the Corporation and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Arkansas, Inc.
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy Arkansas, Inc. (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Gulf States, Inc.
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy Gulf States, Inc. (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the compan y are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Louisiana Holdings, Inc. and Subsidiaries
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy Louisiana Holdings, Inc. and Subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Louisiana, LLC
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy Louisiana, LLC (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy Mississippi, Inc.
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy Mississippi, Inc. (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Entergy New Orleans, Inc.
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that Entergy New Orleans, Inc. (Debtor-in-Possession) (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements and included explanatory paragraphs regarding its filing for reorganization under Chapter 11 of the Federal Bankruptcy Code and the existence of matters that raise substantial doubt about its ability to continue as a going concern.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
System Energy Resources, Inc.
We have audited management's assessment, included in the accompanying Controls and Procedures - Internal Control over Financial Reporting, that System Energy Resources, Inc. (the "Company") maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements as of and for the year ended December 31, 2005 of the Company and our report dated March 9, 2006 expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
Item 9B. Other Information
See Note 4 to the consolidated financial statements for a description of Entergy Corporation's five-year and three-year revolving credit facilities. Following is a summary of the borrowings outstanding and capacity available under these facilities as of March 9, 2006.
Facility |
Capacity |
Borrowings |
Letters of Credit |
Capacity Available |
(In Millions) |
||||
5-Year Facility | $2,000 | $1,185 | $115 | $700 |
3-Year Facility | $1,500 | $- | $- | $1,500 |
PART III
Item 10. Directors and Executive Officers of the Registrants (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy)
All officers and directors listed below held the specified positions with their respective companies as of the date of filing this report, unless otherwise noted.
Name |
Age |
Position |
Period |
||
ENTERGY ARKANSAS, INC. |
|||||
Directors |
|||||
Hugh T. McDonald |
47 |
President and Chief Executive Officer of Entergy Arkansas |
2000-Present |
||
Director of Entergy Arkansas |
2000-Present |
||||
Senior Vice President, Retail of Entergy Services, Inc. |
1999-2000 |
||||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Officers |
|||||
Jay A. Lewis |
44 |
Vice President and Chief Financial Officer - Utility Operations Group of |
2004-Present |
||
Director, Accounting Policy and Research of Entergy Services, Inc. |
1999 - 2004 |
||||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Curtis L. Hebert, Jr. |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Nathan E. Langston |
See information under the Entergy Corporation Officers Section in Part I. |
||||
J. Wayne Leonard |
See information under the Entergy Corporation Officers Section in Part I. |
||||
William E. Madison |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Hugh T. McDonald |
See information under the Entergy Arkansas Directors Section above. |
||||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Robert D. Sloan |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
||||
Gary J. Taylor |
See information under the Entergy Corporation Officers Section in Part I. |
||||
ENTERGY GULF STATES, INC. |
||||
Directors |
||||
E. Renae Conley |
48 |
Director of Entergy Gulf States and Entergy Louisiana, LLC |
2000-Present |
|
President and Chief Executive Officer - LA of Entergy Gulf States and |
2000-Present |
|||
Joseph F. Domino |
57 |
Director of Entergy Gulf States |
1999-Present |
|
President and Chief Executive Officer - TX of Entergy Gulf States |
1998-Present |
|||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Officers |
||||
E. Renae Conley |
See information under the Entergy Gulf States Directors Section above. |
|||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Joseph F. Domino |
See information under the Entergy Gulf States Directors Section above. |
|||
Curtis L. Hebert, Jr. |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Nathan E. Langston |
See information under the Entergy Corporation Officers Section in Part I. |
|||
J. Wayne Leonard |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Jay A. Lewis |
See information under the Entergy Arkansas Officers Section above. |
|||
William E. Madison |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Robert D. Sloan |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Gary J. Taylor |
See information under the Entergy Corporation Officers Section in Part I. |
|||
ENTERGY LOUISIANA HOLDINGS, INC. |
||||
Directors |
||||
Michael D. Bakewell |
51 |
Director of Entergy Louisiana Holdings, Inc. |
2005-Present |
|
President and Chief Executive Officer of Entergy Louisiana Holdings, Inc. |
2005-Present |
|||
Senior Vice President, Fossil Operations for Entergy Services |
2004-Present |
|||
Vice President, Fossil Plant Operations for Entergy Services |
1998-2004 |
|||
Robert A. Malone |
54 |
Director of Entergy Louisiana Holdings, Inc. |
2005-Present |
|
Treasurer of Entergy Louisiana Holdings, Inc. |
2005-Present |
|||
Vice President, Technical Services for Entergy Services |
2005-Present |
|||
Vice President, Engineering and Construction of Entergy Enterprises |
2000-Present |
|||
William M. Mohl |
46 |
Director of Entergy Louisiana Holdings, Inc. |
2005-Present |
|
Vice President of Entergy Louisiana Holdings, Inc. |
2005-Present |
|||
Vice President of Commercial Operations for Entergy Services |
2004-2005 |
|||
Director of Asset Management for Entergy Services |
2002-2004 |
|||
Chief Operating Officer, Koch Investment Group, Ltd. |
2000-2002 |
|||
Officers |
||||
Michael D. Bakewell |
See information under the Entergy Louisiana Holdings, Inc. Directors |
|||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Curtis L. Hebert, Jr. |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Nathan E. Langston |
See information under the Entergy Corporation Officers Section in Part I. |
|||
J. Wayne Leonard |
See information under the Entergy Corporation Officers Section in Part I. |
|||
William E. Madison |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Robert D. Sloan |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Gary J. Taylor |
See information under the Entergy Corporation Officers Section in Part I. |
|||
ENTERGY LOUISIANA, LLC |
||||
Directors |
||||
E. Renae Conley |
See information under the Entergy Gulf States Directors Section above. |
|||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Officers |
||||
E. Renae Conley |
See information under the Entergy Gulf States Directors Section above. |
|||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Curtis L. Hebert, Jr. |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Nathan E. Langston |
See information under the Entergy Corporation Officers Section in Part I. |
|||
J. Wayne Leonard |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Jay A. Lewis |
See information under the Entergy Arkansas Officers Section above. |
|||
William E. Madison |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Robert D. Sloan |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Gary J. Taylor |
See information under the Entergy Corporation Officers Section in Part I. |
|||
ENTERGY MISSISSIPPI, INC. |
||||
Directors |
||||
Carolyn C. Shanks |
44 |
President and Chief Executive Officer of Entergy Mississippi |
1999-Present |
|
Director of Entergy Mississippi |
1999-Present |
|||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Officers |
||||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Curtis L. Hebert, Jr. |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Nathan E. Langston |
See information under the Entergy Corporation Officers Section in Part I. |
|||
J. Wayne Leonard |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Jay A. Lewis |
See information under the Entergy Arkansas Officers Section above. |
|||
William E. Madison |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Carolyn C. Shanks |
See information under the Entergy Mississippi Directors Section above. |
|||
Robert D. Sloan |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Gary J. Taylor |
See information under the Entergy Corporation Officers Section in Part I. |
|||
ENTERGY NEW ORLEANS, INC. |
||||
Directors |
||||
Daniel F. Packer |
58 |
Chief Executive Officer Entergy New Orleans |
1998-Present |
|
President of Entergy New Orleans |
1997-Present |
|||
Director of Entergy New Orleans |
1996-Present |
|||
Tracie L. Boutte |
42 |
Director of Entergy New Orleans |
2005-Present |
|
Vice President, Regulatory Affairs - New Orleans of Entergy New Orleans |
2004-Present |
|||
Vice President, Gas Distribution - Entergy Services, Inc. |
2002-2004 |
|||
Vice President, Gas & C & I Services - Entergy New Orleans |
2000-2002 |
|||
Roderick K. West |
37 |
Director of Entergy New Orleans |
2005-Present |
|
Director, Metro Distribution Operations of Entergy Services, Inc. |
2005-Present |
|||
Region Manager, Distribution Operations of Entergy Services, Inc. |
2003-2005 |
|||
Director, Regulatory Affairs of Entergy New Orleans |
2001-2003 |
|||
Officers |
||||
Leo P. Denault |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Curtis L. Hebert, Jr. |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Nathan E. Langston |
See information under the Entergy Corporation Officers Section in Part I. |
|||
J. Wayne Leonard |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Jay A. Lewis |
See information under the Entergy Arkansas Officers Section above. |
|||
William E. Madison |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Daniel F. Packer |
See information under the Entergy New Orleans Directors Section above. |
|||
Mark T. Savoff |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Robert D. Sloan |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Richard J. Smith |
See information under the Entergy Corporation Officers Section in Part I. |
|||
Gary J. Taylor |
See information under the Entergy Corporation Officers Section in Part I. |
SYSTEM ENERGY RESOURCES, INC. | ||||
Directors | ||||
Gary J. Taylor | See information under the Entergy Corporation Officers Section in Part I. | |||
Leo P. Denault | See information under the Entergy Corporation Officers Section in Part I. | |||
Steven C. McNeal |
48 |
Director of System Energy | 2004-Present | |
Vice President and
Treasurer of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy |
1998-Present | |||
Officers | ||||
Theodore Bunting |
47 |
Vice President and
Chief Financial Officer - Nuclear Operations of System Energy |
2004 - Present | |
Vice President and
Chief Financial Officer of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans |
2002 - 2004 | |||
Vice President and Chief Financial Officer - Operations of Entergy Services | 2000 - 2002 | |||
Leo P. Denault | See information under the Entergy Corporation Officers Section in Part I. | |||
Curtis L. Hebert, Jr. | See information under the Entergy Corporation Officers Section in Part I. | |||
Nathan E. Langston | See information under the Entergy Corporation Officers Section in Part I. | |||
J. Wayne Leonard | See information under the Entergy Corporation Officers Section in Part I. | |||
William E. Madison | See information under the Entergy Corporation Officers Section in Part I. | |||
Mark T. Savoff | See information under the Entergy Corporation Officers Section in Part I. | |||
Robert D. Sloan | See information under the Entergy Corporation Officers Section in Part I. | |||
Richard J. Smith | See information under the Entergy Corporation Officers Section in Part I. | |||
Gary J. Taylor | See information under the Entergy Corporation Officers Section in Part I. |
Each director and officer of the applicable Entergy company is elected yearly to serve by the unanimous consent of the sole stockholder, Entergy Corporation, at its annual meeting, with the exception of the directors and officers of Entergy Louisiana, LLC, who are elected yearly to serve by the unanimous consent of the sole common membership owner, Entergy Louisiana Holdings.
Corporate Governance Guidelines and Committee Charters
Each of the Audit, Corporate Governance and Personnel Committees of Entergy Corporation's Board of Directors operates under a written charter. In addition, the full Board has adopted Corporate Governance Guidelines. Each charter and the guidelines are available through Entergy's website (www.entergy.com) or upon written request.
Audit Committee of the Entergy Corporation Board
The following directors are members of the Audit Committee of Entergy Corporation's Board of Directors:
Steven V. Wilkinson (Chairman)
Claiborne P. Deming
Stuart L. Levenick
Kathleen A. Murphy
James R. Nichols
William A. Percy, II
All Audit Committee members are independent. For purposes of independence of members of the Audit Committee, an independent director also may not accept directly or indirectly any consulting, advisory or other compensatory fee from Entergy or be affiliated with Entergy as defined in SEC rules. All Audit Committee members possess the level of financial literacy and accounting or related financial management expertise required by the NYSE rules. Steven V. Wilkinson qualifies as an "audit committee financial expert," as that term is defined in the SEC rules.
Code of Ethics
The Board of Directors has adopted a Code of Business Conduct and Ethics for Members of the Board of Directors. The code is available through Entergy's website (www.entergy.com) or upon written request. The Board has also adopted a Code of Business Conduct and Ethics for Employees, that includes Special Provision Relating to Principal Executive Officer and Senior Financial Officers. The Code of Business Conduct and Ethics for Employees is to be read in conjunction with Entergy's omnibus code of integrity under which Entergy operates called the Code of Entegrity as well as system policies. All employees are required to abide by the Codes. Non-bargaining employees are required to acknowledge annually that they understand and abide by the Code of Entegrity. The Code of Business Conduct and Ethics for Employees and the Code of Entegrity are available through Entergy's website (www.entergy.com) or upon written request.
Source of Nominations to the Board of Directors; Nominating Procedure
The Corporate Governance Committee has adopted a policy on consideration of potential director nominees. The Committee will consider nominees from a variety of sources, including nominees suggested by shareholders, executive officers, fellow board members, or a third party firm retained for that purpose. It applies the same procedures to all nominees regardless of the source of the nomination.
Any party wishing to make a nomination should provide a written resume of the proposed candidate, detailing relevant experience and qualifications, as well as a list of references. The Committee will review the resume and may contact references. It will decide based on the resume and references whether to proceed to a more detailed investigation. If the Committee determines that a more detailed investigation of the candidate is warranted, it will invite the candidate for a personal interview, conduct a background check on the candidate, and assess the ability of the candidate to provide any special skills or characteristics identified by the Committee or the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Information called for by this item concerning the directors and officers of Entergy Corporation is set forth in the Proxy Statement of Entergy Corporation to be filed in connection with its Annual Meeting of Stockholders to be held on May 12, 2006, under the heading "Section 16(a) Beneficial Ownership Reporting Compliance", which information is incorporated herein by reference.
Item 11. Executive Compensation
ENTERGY CORPORATION
Information called for by this item concerning the directors and officers of Entergy Corporation is set forth in the Proxy Statement under the headings "Executive Compensation Tables", "Nominees for the Board of Directors", "Director Compensation", and "Comparison of Five Year Cumulative Total Return", all of which information is incorporated herein by reference.
ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA HOLDINGS, INC., ENTERGY LOUISIANA, LLC, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS, AND SYSTEM ENERGY
Summary Compensation Table
The following table includes the Chief Executive Officer, the four other most highly compensated executive officers in office as of December 31, 2005 at Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy (collectively, the "Named Executive Officers"). This determination was based on total annual base salary and bonuses from all Entergy sources earned by each officer for the year 2005. See Item 10, "Directors and Executive Officers of the Registrants," for information on the principal positions of the Named Executive Officers in the table below.
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy
As shown in Item 10, most Named Executive Officers are employed by several Entergy companies. Because it would be impracticable to allocate such officers' salaries among the various companies, the table below includes the aggregate compensation paid by all Entergy companies.
Long-Term Compensation |
||||||||||||||||
Annual Compensation |
Awards |
Payouts |
||||||||||||||
|
|
|
|
(a) Other |
Restricted |
Securities |
(d) |
(e) All |
||||||||
Michael D. Bakewell |
2005 |
$317,741 |
$385,000 |
$15,952 |
(b) |
14,000 shares |
$326,991 |
$8,765 |
||||||||
CEO - Entergy Louisiana |
2004 |
282,782 |
290,000 |
12,302 |
(b) |
13,345 |
333,132 |
11,451 |
||||||||
Holdings |
2003 |
223,746 |
185,000 |
14,752 |
(b) |
15,420 |
190,170 |
11,727 |
||||||||
E. Renae Conley |
2005 |
$356,157 |
$430,800 |
$20,895 |
(b) |
15,000 shares |
$460,642 |
$10,814 |
||||||||
CEO-Entergy Louisiana, LLC |
2004 |
345,912 |
272,220 |
18,867 |
(b) |
18,400 |
724,200 |
30,537 |
||||||||
CEO-LA-Entergy Gulf States |
2003 |
334,453 |
200,000 |
31,087 |
(b) |
33,092 |
460,088 |
15,413 |
||||||||
Leo P. Denault |
2005 |
$514,310 |
$400,400 |
$28,546 |
(b) |
35,000 shares |
$698,445 |
$10,293 |
||||||||
2004 |
463,631 |
490,000 |
15,330 |
(b) |
40,000 |
557,634 |
29,518 |
|||||||||
2003 |
286,824 |
217,402 |
4,551 |
(b) |
30,600 |
190,170 |
13,308 |
|||||||||
Joseph F. Domino |
2005 |
$283,634 |
$214,875 |
$22,640 |
(b) |
14,601 shares |
$237,735 |
$9,558 |
||||||||
CEO-TX-Entergy Gulf States |
2004 |
274,242 |
172,813 |
28,787 |
(b) |
18,189 |
304,164 |
12,214 |
||||||||
2003 |
265,626 |
200,765 |
46,480 |
(b) |
10,500 |
190,170 |
11,912 |
|||||||||
J. Wayne Leonard |
2005 |
$1,123,607 |
$1,246,300 |
$26,495 |
(b) |
165,200 shares |
$3,180,074 |
$14,160 |
||||||||
2004 |
1,088,769 |
1,540,000 |
46,344 |
(b) |
220,000 |
4,634,880 |
48,199 |
|||||||||
2003 |
1,038,461 |
1,197,800 |
26,152 |
(b) |
195,000 |
2,944,560 |
73,639 |
|||||||||
Hugh T. McDonald |
2005 |
$289,270 |
$160,600 |
$19,289 |
(b) |
22,522 shares |
$237,735 |
$9,478 |
||||||||
CEO-Entergy Arkansas |
2004 |
288,847 |
197,400 |
25,927 |
(b) |
10,000 |
304,164 |
12,596 |
||||||||
2003 |
264,201 |
195,000 |
32,276 |
(b) |
21,199 |
190,170 |
12,134 |
|||||||||
Daniel F. Packer |
2005 |
$270,150 |
$ - |
|
$37,439 |
(b) |
10,000 shares |
$237,735 |
$9,505 |
|||||||
CEO-Entergy New Orleans |
2004 |
260,748 |
164,375 |
27,090 |
(b) |
10,000 |
304,164 |
11,122 |
||||||||
2003 |
253,628 |
190,000 |
58,519 |
(b) |
8,000 |
190,170 |
3,204 |
|||||||||
Mark T. Savoff |
2005 |
$507,154 |
$392,700 |
$36,713 |
(b) |
20,000 shares |
$661,237 |
$9,272 |
||||||||
2004 |
500,001 |
490,000 |
24,607 |
(b) |
31,800 |
405,552 |
21,293 |
|||||||||
2003 |
19,231 |
- |
51,485 |
(b) |
- |
- |
865 |
|||||||||
Carolyn C. Shanks |
2005 |
$283,308 |
$214,500 |
$23,287 |
(b) |
10,000 shares |
$237,735 |
$9,395 |
||||||||
CEO-Entergy Mississippi |
2004 |
283,885 |
213,900 |
14,297 |
(b) |
10,000 |
304,164 |
11,800 |
||||||||
2003 |
263,758 |
195,000 |
92,825 |
$152,160 (b)(c) |
14,000 |
190,170 |
12,132 |
|||||||||
Richard J. Smith |
2005 |
$514,308 |
$400,400 |
$20,696 |
(b) |
40,000 shares |
$998,217 |
$12,364 |
||||||||
2004 |
494,806 |
490,000 |
11,840 |
(b) |
63,600 |
1,231,140 |
56,186 |
|||||||||
2003 |
473,019 |
380,867 |
64,371 |
(b) |
72,777 |
674,795 |
23,128 |
|||||||||
Gary J. Taylor |
2005 |
$477,077 |
$385,000 |
$29,111 |
(b) |
35,000 shares |
$943,594 |
$9,926 |
||||||||
CEO-System Energy |
2004 |
414,356 |
411,600 |
29,170 |
(b) |
40,000 |
1,013,880 |
9,987 |
||||||||
2003 |
394,615 |
316,400 |
78,575 |
(b) |
26,900 |
539,836 |
7,240 |
|||||||||
(a) |
2005 Other Annual Compensation includes the following: |
(1) |
Payments for personal financial counseling as follows: Mr. Bakewell $9,970; Ms. Conley $11,000; Mr. Denault $15,087; Mr. Domino $8,322; Mr. Leonard $2,100; Mr. McDonald $3,335; Mr. Packer $9,252; Mr. Savoff $21,263; Ms. Shanks $10,340; Mr. Smith $8,450; and Mr. Taylor $10,830. |
(2) |
Payments for annual physical exams as follows: Ms. Conley $3,142; Mr. Denault $1,868; Mr. Domino $2,708; Mr. Leonard $16,886; and Mr. Savoff $4,280. |
(3) |
Personal use of company aircraft as follows: Mr. Bakewell $194; Ms. Conley $1,205; Mr. Denault $3,254; Mr. Domino $333; Mr. Leonard $4,506; Mr. McDonald $197; Mr. Packer $11,563; Mr. Savoff $1,035; Ms. Shanks $2,240; Mr. Smith $5,779; and Mr. Taylor $9,039. In July 2005, the Company adopted a change to the application of its policy with respect to the personal use of corporate aircraft by executives. The Company decided to allow personal use of corporate aircraft at Company expense for the Company's Chief Executive Officer. |
(4) |
Payments for club dues as follows: Mr. Domino $3,415; Mr. McDonald $9,305; Mr. Packer $4,924; Ms. Shanks $3,383; and Mr. Taylor $794. |
(5) |
Travel expenses related to volunteer service to Mr. Domino for $3,521. |
(6) |
Tax gross up payments as follows: Mr. Bakewell $5,788; Ms. Conley $5,548; Mr. Denault $8,337; Mr. Domino $4,341; Mr. Leonard $3,003; Mr. McDonald $6,452; Mr. Packer $11,700; Mr. Savoff $10,135; Ms. Shanks $7,324; Mr. Smith $6,467; and Mr. Taylor $8,448. |
(b) |
Performance unit (equivalent to shares of Entergy common stock) awards in 2005 are reported under the "Long-Term Incentive Plan Awards" table. At December 31, 2005, the number and market value of the aggregate performance unit holdings held by named executive officers were as follows: Mr. Bakewell 13,700 units, $940,505; Ms. Conley 14,700 units, $1,009,155; Mr. Denault 30,800 units, $2,114,420; Mr. Domino 7,200 units, $494,280; Mr. Leonard 170,900 units, $11,732,285; Mr. McDonald 7,200 units, $494,280; Mr. Packer 7,200 units, $494,280; Mr. Savoff 31,500 units, $2,162,475; Ms. Shanks 10,200 units, $700,230; Mr. Smith 31,500 units, $2,162,475; and Mr. Taylor 31,500 units, $2,162,475. Accumulated dividends are paid on performance units when vested. The value of performance unit holdings as of December 31, 2005 is determined by multiplying the total number of units held by the closing market price of Entergy common stock on the New York Stock Exchange Composite Transactions on December 30, 2005 ($68.65 per share). The value of units which vested in 2005, 2004 and 2003, including accumulated cash dividends, are reported in the LTIP payouts column in the above table. |
(c) |
In addition to the performance units granted under the Equity Ownership Plan, Ms. Shanks was granted 3,000 restricted units in 2003. Restrictions will be lifted on 1,200 units in 2006 and the remaining 1,800 units in 2011, based on continued service with Entergy. Accumulated dividends will not be paid. The value Ms. Shanks may realize is dependent upon both the number of units that vest and the future market price of Entergy common stock. |
(d) |
Amounts include the value of performance units that vested in 2005, 2004 and 2003 (see note (b) above) under Entergy's Equity Ownership Plan. |
(e) |
All Other Compensation includes the following: |
(1) |
2005 benefit accruals under the Defined Contribution Restoration Plan as follows: Mr. Bakewell $68; Ms. Conley $1,994; Mr. Denault $1,473; Mr. Domino $738; Mr. Leonard $5,340; Mr. McDonald $564; Mr. Packer $685; Mr. Savoff $452; Ms. Shanks $575; Mr. Smith $3,544; and Mr. Taylor $1,106. |
(2) |
2005 employer contributions to the System Savings Plan as follows: Mr. Bakewell $8,697; Ms. Conley $8,820; Mr. Denault $8,820; Mr. Domino $8,820; Mr. Leonard $8,820; Mr. McDonald $8,914; Mr. Packer $8,820; Mr. Savoff $8,820; Ms. Shanks $8,820; Mr. Smith $8,820; and Mr. Taylor $8,820. |
Option Grants in 2005
The following table summarizes option grants during 2005 to the Named Executive Officers. The absence, in the table below, of any Named Executive Officer indicates that no options were granted to such officer.
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy
Potential Realizable |
||||||||||||
Individual Grants |
Value |
|||||||||||
Number of |
% of Total |
at Assumed Annual |
||||||||||
Securities |
Options |
Rates of Stock |
||||||||||
Underlying |
Granted to |
Exercise |
Price Appreciation |
|||||||||
Options |
Employees |
Price (per |
Expiration |
for Option Term (b) |
||||||||
Name |
Granted (a) |
in 2005 |
share) (a) |
Date |
5% |
10% |
||||||
Michael D. Bakewell |
14,000 |
0.8% |
$69.47 |
1/27/15 |
$611.650 |
$1,550,042 |
||||||
E. Renae Conley |
15,000 |
0.8% |
69.47 |
1/27/15 |
655,340 |
1,660,759 |
||||||
Leo P. Denault |
35,000 |
1.9% |
69.47 |
1/27/15 |
1,529,126 |
3,875,105 |
||||||
Joseph F. Domino |
10,000 |
0.5% |
69.47 |
1/27/15 |
436,893 |
1,107,173 |
||||||
4,601 (c) |
0.3% |
73.58 |
1/25/11 |
106,785 |
239,827 |
|||||||
J. Wayne Leonard |
165,200 |
9.0% |
69.47 |
1/27/15 |
7,217,474 |
18,290,496 |
||||||
Hugh T. McDonald |
10,000 |
0.5% |
69.47 |
1/27/15 |
436,893 |
1,107,173 |
||||||
12,522 (c) |
0.7% |
73.25 |
2/11/12 |
352,021 |
812,797 |
|||||||
Daniel F. Packer |
10,000 |
0.5% |
69.47 |
1/27/15 |
436,893 |
1,107,173 |
||||||
Mark T. Savoff |
20,000 |
1.1% |
69.47 |
1/27/15 |
873,786 |
2,214,346 |
||||||
Carolyn C. Shanks |
10,000 |
0.5% |
69.47 |
1/27/15 |
436,893 |
1,107,173 |
||||||
Richard J. Smith |
40,000 |
2.2% |
69.47 |
1/27/15 |
1,747,572 |
4,428,692 |
||||||
Gary J. Taylor |
35,000 |
1.9% |
69.47 |
1/27/15 |
1,529,126 |
3,875,105 |
(a) |
Options were granted on January 27, 2005, pursuant to the Equity Ownership Plan. All options granted on this date have an exercise price equal to the closing price of Entergy common stock on the New York Stock Exchange Composite Transactions on January 27, 2005. These options will vest in equal increments, annually, over a three-year period beginning in 2006, based on continued service with Entergy. |
(b) |
Calculation based on the market price of the underlying securities assuming the market price increases over the option period and assuming annual compounding. The column presents estimates of potential values based on simple mathematical assumptions. The actual value, if any, a Named Executive Officer may realize is dependent upon the market price on the date of option exercise. |
(c) |
During 2005, Mr. Domino and Mr. McDonald converted presently exercisable stock options into Entergy stock and reload stock options. They accomplished this by exercising stock options, paying the exercise price and all applicable taxes for these shares by surrendering shares of Entergy stock. Additional options, as indicated above, were granted pursuant to the reload feature of this "stock for stock" exercise method. Under the reload mechanism, eligible participants are granted an additional number of options equal to the number of shares surrendered to pay the exercise price. The reloaded stock options vest immediately and have an exercise price equal to the price of Entergy common stock on the New York Stock Exchange Composite Transactions on the date of exercise of the original options. The reloaded options retain the original grant's expiration date. The reload feature was removed from the Equity Ownership Plan as approved by the Stockholders in May 2003. Reloads are no longer available for options granted after February 13, 2003. |
Aggregated Option Exercises in 2005 and December 31, 2005 Option Values
The following table summarizes the number and value of all unexercised options held by the Named Executive Officers. The absence, in the table below, of any Named Executive Officer indicates that no options are held by such officer.
Number of |
||||||||||||
Securities Underlying |
Value of Unexercised |
|||||||||||
Unexercised Options |
In-the-Money Options |
|||||||||||
Shares Acquired |
Value |
as of December 31, 2005 |
as of December 31, 2005 (b) |
|||||||||
Name |
on Exercise |
Realized (a) |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
||||||
Michael D. Bakewell |
5,667 |
$192,650 |
25,631 |
25,834 |
$521,043 |
$168,457 |
||||||
E. Renae Conley |
- |
- |
113,325 |
35,267 |
3,082,661 |
316,883 |
||||||
Leo P. Denault |
- |
- |
65,756 |
64,934 |
1,339,047 |
347,065 |
||||||
Joseph F. Domino |
13,585 |
490,025 |
45,158 |
20,167 |
853,722 |
151,703 |
||||||
J. Wayne Leonard |
- |
- |
1,450,133 |
376,867 |
48,223,040 |
3,047,003 |
||||||
Hugh T. McDonald |
29,400 |
940,888 |
40,454 |
20,667 |
674,264 |
163,803 |
||||||
Daniel F. Packer |
34,800 |
1,284,294 |
8,666 |
19,334 |
162,555 |
131,545 |
||||||
Mark T. Savoff |
- |
- |
10,600 |
41,200 |
106,530 |
213,060 |
||||||
Carolyn C. Shanks |
20,000 |
741,580 |
12,666 |
21,334 |
259,355 |
179,945 |
||||||
Richard J. Smith |
- |
- |
211,738 |
99,067 |
5,125,440 |
829,461 |
||||||
Gary J. Taylor |
- |
- |
92,533 |
70,634 |
2,344,802 |
485,005 |
(a) |
Based on the difference between the closing price of Entergy's common stock on the New York Stock Exchange Composite Transactions on the exercise date and the option exercise price. |
(b) |
Based on the difference between the closing price of Entergy's common stock on the New York Stock Exchange Composite Transactions on December 30, 2005, and the option exercise price. |
Long-Term Incentive Plan Awards in 2005
The following table summarizes the awards of performance units (equivalent to shares of Entergy common stock) granted under the Equity Ownership Plan in 2005 to the Named Executive Officers.
|
|
|
|
|
|
Estimated Future Payouts Under |
||||
|
|
Number of |
|
Performance Period Until |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Bakewell |
6,700 |
1/1/05-12/31/07 |
300 |
|
2,700 |
|
6,700 |
|||
E. Renae Conley |
|
6,700 |
|
1/1/05-12/31/07 |
|
300 |
|
2,700 |
|
6,700 |
Leo P. Denault |
|
15,000 |
|
1/1/05-12/31/07 |
|
600 |
|
6,000 |
|
15,000 |
Joseph F. Domino |
|
3,200 |
|
1/1/05-12/31/07 |
|
200 |
|
1,300 |
|
3,200 |
J. Wayne Leonard |
|
85,700 |
|
1/1/05-12/31/07 |
|
3,500 |
|
34,300 |
|
85,700 |
Hugh T. McDonald |
|
3,200 |
|
1/1/05-12/31/07 |
|
200 |
|
1,300 |
|
3,200 |
Daniel F. Packer |
|
3,200 |
|
1/1/05-12/31/07 |
|
200 |
|
1,300 |
|
3,200 |
Mark T. Savoff |
|
15,000 |
|
1/1/05-12/31/07 |
|
600 |
|
6,000 |
|
15,000 |
Carolyn C. Shanks |
|
3,200 |
|
1/1/05-12/31/07 |
|
200 |
|
1,300 |
|
3,200 |
Richard J. Smith |
|
15,000 |
|
1/1/05-12/31/07 |
|
600 |
|
6,000 |
|
15,000 |
Gary J. Taylor |
|
15,000 |
|
1/1/05-12/31/07 |
|
600 |
|
6,000 |
|
15,000 |
(a) |
Performance units awarded will vest at the end of a three-year period, subject to the attainment of approved performance goals for Entergy. These performance goals are based on Entergy's attainment of specified total shareholder return levels for Entergy common stock compared to industry peer companies over the three-year performance period. Actual awards are based upon the achievement of the cumulative result of these goals for the performance period. The value any Named Executive Officer may realize is dependent upon the number of units that vest, the future market price of Entergy common stock, and the dividends paid during the performance period. |
(b) |
The threshold, target, and maximum levels correspond to the achievement of 10%, 100%, and 250%, respectively, of Equity Ownership Plan goals. Achievement of a threshold, target, or maximum level would result in the award of the number of units indicated in the respective column. Achievement of a level between these three specified levels would result in the award of a number of units calculated by means of interpolation. |
Executive Retirement and Benefit Plans
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy
The Named Executive Officers are eligible to participate in three types of non-qualified retirement benefit plans. The first type of plan is one that provides retirement income, and includes the qualified retirement plan combined with the Pension Equalization Plan, the Supplemental Retirement Plan, and the System Executive Retirement Plan. In these plans, an executive is typically enrolled in one or more plans but only paid the amount due under the plan that provides the highest benefit, except that participants in the Supplemental Retirement Plan are also eligible for benefits under the Pension Equalization Plan. The second type of plan provides for payments in the event of a change in control, and includes the System Executive Continuity Plans. Finally, the Executive Deferred Compensation Plan and the Equity Ownership Plan allow for deferral of earned income.
Qualified Retirement Plan Combined with Pension Equalization Plan. Entergy Corporation has a tax-qualified defined benefit plan, which, combined with a non-qualified Pension Equalization Plan ("PEP"), provides for a retirement benefit calculated by multiplying the number of years of employment by 1.5%, which is then multiplied by the final average pay as defined in the plans, and currently includes base salary plus annual bonus. The normal form of benefit for a single executive employee is a lifetime annuity and for a married executive employee is a reduced benefit with a 50% surviving spouse annuity. Retirement benefits are not subject to any deduction for social security.
The maximum benefit under the qualified pension plan is limited by Sections 401 and 415 of the Internal Revenue Code of 1986, as amended; however, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy have elected to participate in the PEP sponsored by Entergy Corporation. Under the PEP, certain executives, including the Named Executive Officers, would receive an additional amount to compensate for the benefit that would have been payable under the qualified pension plan, except for the Internal Revenue Code Sections 401 and 415 limitations discussed above. The PEP also includes as earnings for purposes of calculating PEP benefits a Named Executive Officer's Executive Annual Incentive Plan bonus and any base salary or bonus the Named Executive Officer elects to defer.
As of December 31, 2005, the credited actual years of service under the combined plans were for Mr. Bakewell (29), Ms. Conley (6), Mr. Denault (6), Mr. Domino (35), Mr. Leonard (7), Mr. McDonald (23), Mr. Packer (23), Mr. Savoff (2), Ms. Shanks (22), Mr. Smith (6), and Mr. Taylor (5). Because they entered into PEP agreements granting additional years of service, the total credited years of service under the PEP were for Ms. Conley (23), Mr. Smith (29), and Mr. Taylor (24).
The following table shows the annual retirement benefits that would be paid at normal retirement (age 65 or later) and includes covered compensation for the executive officers included in the salary column of the Summary Compensation Table above.
Retirement Income Plan Table
Annual |
||||||||||
Covered |
Years of Service |
|||||||||
Compensation |
15 |
20 |
25 |
30 |
35 |
|||||
$250,000 |
$56,250 |
$75,000 |
$93,750 |
$112,500 |
$131,250 |
|||||
500,000 |
112,500 |
150,000 |
187,500 |
225,000 |
262,500 |
|||||
750,000 |
168,750 |
225,000 |
281,250 |
337,500 |
393,750 |
|||||
1,000,000 |
225,000 |
300,000 |
375,000 |
450,000 |
525,000 |
|||||
1,500,000 |
337,500 |
450,000 |
562,500 |
675,000 |
787,500 |
|||||
2,000,000 |
450,000 |
600,000 |
750,000 |
900,000 |
1,050,000 |
|||||
2,500,000 |
562,500 |
750,000 |
937,500 |
1,125,000 |
1,312,500 |
|||||
3,000,000 |
675,000 |
900,000 |
1,125,000 |
1,350,000 |
1,575,000 |
(1) |
Benefits are shown for various rates of final average pay, which is the highest salary earned in any consecutive 60 months during the last 120 months of employment. |
Supplemental Retirement Plan ("SRP"). Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy participate in the Supplemental Retirement Plan of Entergy Corporation and Subsidiaries. Executives may participate in the SRP, which is an unfunded defined benefit plan, at the invitation of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy. Mr. Packer is the only named executive officer who is currently a participant in the plan. The SRP provides that, under certain circumstances, a participant may receive a monthly retirement benefit payment for 120 months. The amount of monthly payment shall not exceed 2.5% of the participant's average basic annual pay (as defined in the SRP).
System Executive Retirement Plan ("SERP"). This executive plan is an unfunded defined benefit plan for participating executives, including all of the executive officers named in the Summary Compensation Table (except for Mr. Leonard, who receives non-qualified supplemental retirement benefits under the terms of his retention contract, which are described below). Executive officers can choose, at retirement, between the retirement benefits paid under the SERP or those payable under the non-qualified supplemental retirement plans discussed above, and in which they participate. SERP benefits are calculated by multiplying the covered pay times the maximum pay replacement ratios of 55%, 60% or 65% (dependent on job rating at retirement) that are attained at 30 years of credited service. The current maximum pay replacement ratio at 20 years of credited service for Mr. Bakewell, Ms. Conley, Mr. Denault, Mr. Savoff, Mr. Smith and Mr. Taylor is 50%. The current m aximum pay replacement ratio at 20 years of credited service for Mr. Domino, Mr. McDonald, Mr. Packer and Ms. Shanks is 45%. The ratios are reduced for each year of employment below 30 years. The normal form of benefit for a single employee is a lifetime annuity, and for a married employee is a reduced benefit with a 50% surviving spouse annuity. These retirement payments may be offset by any and all defined benefit plan payments from the Company and from prior employers. These payments are not subject to social security offsets.
Receipt of benefits under any of the supplemental retirement plans described above is contingent upon several factors. The participant must agree, without the specific consent of the Entergy company for which such participant was last employed, not to take employment after retirement with any entity that is in competition with, or similar in nature to, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy or any affiliate thereof. Eligibility for benefits is forfeitable for various reasons, including violation of an agreement with Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy, or for resignation or termination of employment for any reason before or after normal retirement age and without the employer's permission.
The credited years of service for the Named Executive Officers under the SERP are as follows: Mr. Bakewell (29), Ms. Conley (6), Mr. Denault (6), Mr. Domino (30), Mr. McDonald (23), Mr. Packer (23), Mr. Savoff (2), Ms. Shanks (22), Mr. Smith (6), and Mr. Taylor (15).
Upon retirement, and subject to existing deferral elections and the provisions of Internal Revenue Code Section 409A, executives are able to receive the value of their SERP, SRP, or PEP benefits paid either as a lump sum or a series of annual payments. The following table shows the annual retirement benefits that would be paid at normal retirement (age 65 or later) under the SERP.
System Executive Retirement Plan Table (1)
Annual |
||||||||||
Covered |
Years of Service |
|||||||||
Compensation |
10 |
15 |
20 |
25 |
30+ |
|||||
$250,000 |
$75,000 |
$112,500 |
$125,000 |
$137,500 |
$150,000 |
|||||
500,000 |
150,000 |
225,000 |
250,000 |
275,000 |
300,000 |
|||||
750,000 |
225,000 |
337,500 |
375,000 |
412,500 |
450,000 |
|||||
1,000,000 |
300,000 |
450,000 |
500,000 |
550,000 |
600,000 |
|||||
1,500,000 |
450,000 |
675,000 |
750,000 |
825,000 |
900,000 |
|||||
2,000,000 |
600,000 |
900,000 |
1,000,000 |
1,100,000 |
1,200,000 |
|||||
2,500,000 |
750,000 |
1,125,000 |
1,250,000 |
1,375,000 |
1,500,000 |
|||||
3,000,000 |
900,000 |
1,350,000 |
1,500,000 |
1,650,000 |
1,800,000 |
(1) |
Covered pay includes the average of the highest three years of annual base pay and incentive awards earned by the executive during the ten years immediately preceding his retirement. Benefits shown are based on a target replacement ratio of 50% based on the years of service and covered compensation shown. The benefits for 10, 15, and 20 or more years of service at the 45% and 55% replacement levels would decrease (in the case of 45%) or increase (in the case of 55%) by the following percentages: 3.0%, 4.5%, and 5.0%, respectively. |
System Executive Continuity Plans. All Named Executive Officers participate in one of Entergy's two System Executive Continuity Plans. However, if Mr. Leonard receives benefits under the change in control protections of his retention contract, which is described below, he will not also receive benefits under the Continuity Plans. Each plan provides severance pay and benefits under specified circumstances following a change in control. In the event a participant's employment is involuntarily terminated without cause or if a participant terminates for good reason during the change in control period, the named executive officers will be entitled to:
Participants in the Continuity Plans are subject to post-employment restrictive covenants, including noncompetition provisions that run for two years for Named Executive Officers but extend to three years if permissible under applicable law.
Deferred Compensation Plans. Executives are eligible to defer earned income through participation in Entergy's Executive Deferred Compensation Plan ("EDCP") or by purchasing phantom units of Entergy stock at fair market value under the Equity Ownership Plan ("EOP"). Executives may under the EDCP defer receipt of base salary, amounts due under the executive plans described above, annual bonuses, performance units, and approved incentive compensation such as restricted units and signing bonuses. The investment options available to executives under the EDCP are similar to those currently available under the Savings Plan of Entergy Corporation and Subsidiaries, except that executives may not invest in Entergy stock under the EDCP. Executives may under the EOP defer receipt of annual bonuses, performance units, restricted units, and pre-2003 option gains.
Compensation of Directors
For information regarding compensation of the directors of Entergy Corporation, see the Proxy Statement under the heading "Director Compensation", which information is incorporated herein by reference. Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy currently have no non-employee directors, and none of the current directors of these companies are compensated for their responsibilities as director.
Retired non-employee directors of Entergy Arkansas, Entergy Louisiana, LLC, Entergy Mississippi, and Entergy New Orleans with a minimum of five years of service on the respective Boards of Directors are paid $200 a month for a term of years corresponding to the number of years of active service as directors. Retired non-employee directors with over ten years of service receive a lifetime benefit of $200 a month. Years of service as an advisory director are included in calculating this benefit. Entergy Louisiana Holdings and System Energy have no retired non-employee directors.
Retired non-employee directors of Entergy Gulf States receive retirement benefits under a plan in which all directors who served continuously for a period of years will receive a percentage of their retainer fee in effect at the time of their retirement for life. The retirement benefit is 30 percent of the retainer fee for service of not less than five nor more than nine years, 40 percent for service of not less than ten nor more than fourteen years, and 50 percent for fifteen or more years of service. For those directors who retired prior to the retirement age, their benefits are reduced. The plan also provides disability retirement and optional hospital and medical coverage if the director has served at least five years prior to the disability. The retired director pays one-third of the premium for such optional hospital and medical coverage and Entergy Gulf States pays the remaining two-thirds. Years of service as an advisory director are included in calculating this benefit.
Executive Employment Contracts and Retention Agreements
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy
For general information regarding change of control benefits applicable to our executive officers, see "System Executive Continuity Plans" above. In addition, upon completion of a transaction resulting in a change-in-control of Entergy (a "Merger"), benefits already accrued under Entergy's System Executive Retirement Plan, Supplemental Retirement Plan and Pension Equalization Plan, and awards granted under the EOP, will become fully vested if the participant is involuntarily terminated without "cause" or terminates employment for "good reason" (as such terms are defined in such plans).
Mr. Leonard - Mr. Leonard's retention agreement provides that if he terminates his employment, with or without "good reason" and except for "cause," he will be entitled to a non-qualified supplemental retirement benefit in lieu of participation in the Company's non-qualified supplemental retirement plans such as the SERP, the SRP, or the PEP. If Mr. Leonard's employment is terminated by Entergy for "cause" at any time he will forfeit his non-qualified supplemental retirement benefit. However, if Mr. Leonard were to leave without "cause," he would be entitled to receive this benefit, plus:
Mr. Leonard's non-qualified supplemental retirement benefit is calculated as a single life annuity equal to 60% of his final monthly compensation (as defined under the SERP), reduced to account for benefits payable to Mr. Leonard under the Company's and a former employer's qualified pension plans. As of December 31, 2005, his final monthly compensation was $203,561, which amount would provide for a single life annuity of approximately $1,465,632 per year as his non-qualified supplemental retirement benefit, subject to the offsets described above. The benefit is payable in a single lump sum, or as periodic payments, as elected by Mr. Leonard in accordance with Internal Revenue Code Section 409A. If elected, periodic payments will be due for Mr. Leonard's life, and then a reduced benefit of 50% will be due for the life of his spouse.
Upon attainment of 10 years of service with the Company, which will occur in 2008, Mr. Leonard would qualify for retirement under certain Company plans. At this point, he would become eligible to receive additional benefits comparable to those available to other retirees of the Company, such as accelerated vesting of stock options, an extended period to exercise those options, pro-rated payment of annual and long-term incentive awards, and continued health and welfare coverage to the extent available.
The retention agreement with Mr. Leonard further provides that, subject to certain forfeiture provisions, upon a termination of employment while a Merger is pending (a) by Entergy without "cause" or by Mr. Leonard for "good reason," as such terms are defined in the agreement, or (b) by reason of Mr. Leonard's death or disability:
Mr. Leonard is currently entitled under his retention agreement to his supplemental retirement benefit if he were to leave the Company, as he has attained the age of 55 during 2005.
Ms. Shanks - The employment agreement with Ms. Shanks provides for her continued employment until 2011. During this period, Ms. Shanks will continue to participate in all executive plans, programs, and arrangements for which she is eligible. In October 2011, Ms. Shanks will become a special project coordinator of Entergy Mississippi or another Entergy System company until 2016. During her tenure as special project coordinator, Ms. Shanks will continue to receive her same rate of annual base salary in effect immediately prior to her assumption of this post, but will forfeit an amount sufficient to fund this salary from amounts that would otherwise be credited to her non-qualified deferral accounts. Commencing in October 2016, Ms. Shanks will be eligible to retire with all of the post-retirement compensation and benefits for which she is eligible.
During the term of the agreement, Ms. Shanks may resign, or Entergy may terminate her for "cause," as defined in the agreement. In either of those events, Ms. Shanks is due no additional compensation or benefits under the agreement. If there is a "change in control" before October of 2011, she remains eligible for benefits under the System Executive Continuity Plan. If the change in control occurs while Ms. Shanks is a special project coordinator, and Entergy's obligations under this agreement are breached, she receives:
Mr. Smith - The retention agreement with Mr. Smith provides that Mr. Smith will be paid a retention payment of approximately $525,000 on each of the first three anniversaries of the date on which a Merger is completed, if he remains employed on each of those dates. The agreement also provides that upon termination of employment while a Merger is pending and for three years after completion of the Merger (a) by Mr. Smith for "good reason" or by Entergy without "cause," as such terms are defined in the agreement or (b) by reason of Mr. Smith's death or disability:
Personnel Committee Interlocks and Insider Participation
The compensation of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy executive officers was set by the Personnel Committee of Entergy Corporation's Board of Directors, composed solely of Directors of Entergy Corporation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Entergy Corporation owns 100% of the outstanding common stock of registrants Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Mississippi, Entergy New Orleans, and System Energy. The information with respect to persons known by Entergy Corporation to be beneficial owners of more than 5% of Entergy Corporation's outstanding common stock is included under the heading "Stockholders Who Own at Least Five Percent" in the Proxy Statement, which information is incorporated herein by reference. The registrants know of no contractual arrangements that may, at a subsequent date, result in a change in control of any of the registrants.
As of December 31, 2005, the directors, the Named Executive Officers, and the directors and officers as a group for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy, respectively, beneficially owned directly or indirectly common stock of Entergy Corporation as indicated:
Sole Voting |
|
|
||||
Entergy Corporation |
||||||
Maureen S. Bateman* |
3,300 |
- |
4,000 |
|||
W. Frank Blount* |
9,984 |
- |
14,400 |
|||
Simon D. deBree* |
1,921 |
- |
3,037 |
|||
Claiborne P. Deming* |
12,406 |
- |
2,639 |
|||
Leo P. Denault** |
1,108 |
80,690 |
28,995 |
|||
Gary W. Edwards* |
200 |
- |
- |
|||
Alexis Herman* |
1,500 |
- |
1,600 |
|||
Donald C. Hintz* |
5,721 |
480,000 |
91,067 |
|||
J. Wayne Leonard*** |
13,576 |
1,570,200 |
155,311 |
|||
Stuart L. Levenick* |
200 |
- |
- |
|||
Robert v.d. Luft* |
25,072 |
311,333 |
10,209 |
|||
Kathleen A. Murphy* |
3,300 (d) |
1,000 |
4,000 |
|||
James R. Nichols* |
9,787 (e) |
3,684 |
15,426 |
|||
William A. Percy, II* (f) |
2,650 |
- |
4,254 |
|||
Mark T. Savoff** |
308 |
17,267 |
213 |
|||
Richard J. Smith** |
1,129 |
241,738 |
58,604 |
|||
W. J. Tauzin* |
100 |
- |
- |
|||
Gary J. Taylor** |
1,235 |
113,167 |
12,462 |
|||
Steven V. Wilkinson* |
1,255 |
- |
1,227 |
|||
All directors and executive |
||||||
officers as a group |
105,024 |
3,180,046 |
514,077 |
|
Sole Voting |
|
|
|||
Entergy Arkansas |
||||||
Leo P. Denault*** |
1,108 |
80,690 |
28,995 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Hugh T. McDonald*** |
5,002 |
47,787 |
36,236 |
|||
Mark T. Savoff*** |
308 |
17,267 |
213 |
|||
Richard J. Smith*** |
1,129 |
241,738 |
58,604 |
|||
All directors and executive |
||||||
officers as a group |
33,424 |
2,452,017 |
398,454 |
|||
Entergy Gulf States |
||||||
E. Renae Conley*** |
2,000 |
126,325 |
41,630 |
|||
Leo P. Denault*** |
1,108 |
80,690 |
28,995 |
|||
Joseph F. Domino*** |
7,454 |
51,991 |
12,422 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Mark T. Savoff*** |
308 |
17,267 |
213 |
|||
Richard J. Smith*** |
1,129 |
241,738 |
58,604 |
|||
All directors and executive |
||||||
officers as a group |
37,876 |
2,582,546 |
416,270 |
|||
Entergy Louisiana Holdings |
||||||
Michael D. Bakewell*** |
3,037 |
33,751 |
3,514 |
|||
Leo P. Denault** |
1,108 |
80,690 |
28,995 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Robert A. Malone* |
525 |
2,933 |
50 |
|||
William M. Mohl* |
- |
4,933 |
- |
|||
Mark T. Savoff** |
308 |
17,267 |
213 |
|||
Richard J. Smith** |
1,129 |
241,738 |
58,604 |
|||
All directors and executive |
||||||
officers as a group |
31,190 |
2,425,646 |
365,782 |
|||
Entergy Louisiana, LLC |
||||||
E. Renae Conley*** |
2,000 |
126,325 |
41,630 |
|||
Leo P. Denault*** |
1,108 |
80,690 |
28,995 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Mark T. Savoff*** |
308 |
17,267 |
213 |
|||
Richard J. Smith*** |
1,129 |
241,738 |
58,604 |
|||
All directors and executive |
||||||
officers as a group |
30,422 |
2,530,555 |
403,848 |
|||
Entergy Mississippi |
||||||
Leo P. Denault*** |
1,108 |
80,690 |
28,995 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Mark T. Savoff*** |
308 |
17,267 |
213 |
|||
Carolyn C. Shanks*** |
3,391 |
20,666 |
19,217 |
|||
Richard J. Smith*** |
1,129 |
241,738 |
58,604 |
|||
All directors and executive |
||||||
officers as a group |
31,813 |
2,424,896 |
381,435 |
|
Sole Voting |
|
|
|||
Entergy New Orleans |
||||||
Tracie L. Boutte* |
1,721 |
7,666 |
6 |
|||
Leo P. Denault** |
1,108 |
80,690 |
28,995 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Daniel F. Packer*** |
565 |
14,666 |
5,612 |
|||
Mark T. Savoff** |
308 |
17,267 |
213 |
|||
Richard J. Smith** |
1,129 |
241,738 |
58,604 |
|||
Roderick K. West* |
626 |
3,899 |
- |
|||
All directors and executive |
||||||
officers as a group |
31,334 |
2,430,461 |
367,836 |
|||
System Energy |
||||||
Leo P. Denault*** |
1,108 |
80,690 |
28,995 |
|||
J. Wayne Leonard** |
13,576 |
1,570,200 |
155,311 |
|||
Steven C. McNeal* |
5,524 |
13,199 |
2,702 |
|||
Mark T. Savoff** |
308 |
17,267 |
213 |
|||
Richard J. Smith** |
1,129 |
241,738 |
58,604 |
|||
Gary J. Taylor*** |
1,235 |
113,167 |
12,462 |
|||
All directors and executive |
||||||
officers as a group |
33,406 |
2,415,997 |
365,038 |
* |
Director of the respective Company |
** |
Named Executive Officer of the respective Company |
*** |
Director and Named Executive Officer of the respective Company |
(a) |
Based on information furnished by the respective individuals. Except as noted, each individual has sole voting and investment power. The number of shares of Entergy Corporation common stock owned by each individual and by all directors and executive officers as a group does not exceed one percent of the outstanding Entergy Corporation common stock. |
(b) |
Other Beneficial Ownership includes, for the Named Executive Officers, shares of Entergy Corporation common stock that may be acquired within 60 days after December 31, 2005, in the form of unexercised stock options awarded pursuant to the Equity Ownership Plan. |
(c) |
Represents the balances of stock equivalent units each executive holds under the deferral provisions of the Equity Ownership Plan and the Defined Contribution Restoration Plan. These units will be paid out in either Common Stock or cash equivalent to the value of one share of Common Stock per unit on the date of payout, including accrued dividends. The deferral period is determined by the individual and is at least two years from the award of the bonus. For directors of Entergy Corporation the stock equivalent units are part of the Service Award for Directors. All non-employee directors are credited with units for each year of service on the Board. |
(d) |
Excludes 1,000 shares of which Ms. Murphy has joint ownership (reported under "Other Beneficial Ownership" column.) |
(e) |
Excludes 3,684 shares that are owned by a charitable foundation that Mr. Nichols controls (reported under "Other Beneficial Ownership" column.) |
Excludes 900 shares deferred by Mr. Percy under Equity Ownership Plan. |
Equity Compensation Plan Information
The Equity Ownership Plan is a shareholder-approved stock-based compensation plan. Entergy also has a Board-approved stock-based compensation plan (Equity Awards Plan). However, effective May 9, 2003, the Board has directed that no further awards can be issued under that plan. As of May 9, 2003, 4,076,628 shares were available for issuance under the Equity Awards Plan. The following table summarizes information about Entergy's stock options awarded under these plans as of December 31, 2005.
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Equity compensation plans |
|
|
|
|
|
|
Equity compensation plans not |
|
|
|
|
|
|
Total |
|
10,855,459 |
|
$46.80 |
|
2,671,186 |
Item 13. Certain Relationships and Related Transactions
Entergy's Code of Business Conduct and Ethics for Employees provides that any waiver of that Code for executive officers, including a waiver of a conflict of interest, can be made only by the Board, or if the Board so chooses, by a committee of independent directors, and must be promptly disclosed to Entergy's shareholders. Entergy's Code of Business Conduct and Ethics for Members of the Board of Directors provides that any waiver of that Code, including any waiver of a conflict of interest, can be made only by the Board, following a recommendation by the Corporate Governance Committee, and must be promptly disclosed to Entergy's shareholders.
Item 14. Principal Accountant Fees and Services (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Aggregate fees billed to Entergy Corporation (consolidated), Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy for the years ended December 31, 2005 and 2004 by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte & Touche"), which includes Deloitte Consulting were as follows:
2005 |
2004 |
|||
Entergy Corporation (consolidated) |
||||
Audit Fees |
$6,020,500 |
$6,289,500 |
||
Audit-Related Fees (a) |
232,000 |
950,900 |
||
Total audit and audit-related fees |
6,253,000 |
7,240,400 |
||
Tax Fees (b) |
118,684 |
62,820 |
||
Total Fees (c) |
$6,371,184 |
$7,303,220 |
||
Entergy Arkansas |
||||
Audit Fees |
$725,813 |
$673,875 |
||
Audit-Related Fees (a) |
- |
110,810 |
||
Total audit and audit-related fees |
725,813 |
784,685 |
||
Tax Fees |
- |
- |
||
All Other Fees |
- |
- |
||
Total Fees (c) |
$725,813 |
$784,685 |
||
Entergy Gulf States |
||||
Audit Fees |
$941,063 |
$1,403,875 |
||
Audit-Related Fees (a) |
30,000 |
110,810 |
||
Total audit and audit-related fees |
971,063 |
1,514,685 |
||
Tax Fees |
- |
- |
||
All Other Fees |
- |
- |
||
Total Fees (c) |
$971,063 |
$1,514,685 |
||
Entergy Louisiana |
||||
Audit Fees |
$974,013 |
$718,875 |
||
Audit-Related Fees (a) |
- |
110,810 |
||
Total audit and audit-related fees |
974,013 |
829,685 |
||
Tax Fees |
- |
- |
||
All Other Fees |
- |
- |
||
Total Fees (c) |
$974,013 |
$829,685 |
2005 |
2004 |
|||
Entergy Mississippi |
||||
Audit Fees |
$727,863 |
$708,875 |
||
Audit-Related Fees (a) |
- |
110,810 |
||
Total audit and audit-related fees |
727,863 |
819,685 |
||
Tax Fees |
- |
- |
||
All Other Fees |
- |
- |
||
Total Fees (c) |
$727,863 |
$819,685 |
||
Entergy New Orleans |
||||
Audit Fees |
$638,000 |
$708,875 |
||
Audit-Related Fees (a) |
48,000 |
183,710 |
||
Total audit and audit-related fees |
686,000 |
892,585 |
||
Tax Fees |
- |
- |
||
All Other Fees |
- |
- |
||
Total Fees (c) |
$686,000 |
$892,585 |
||
System Energy |
||||
Audit Fees |
$578,113 |
$598,750 |
||
Audit-Related Fees (a) |
- |
38,500 |
||
Total audit and audit-related fees |
578,113 |
637,250 |
||
Tax Fees |
- |
- |
||
All Other Fees |
- |
- |
||
Total Fees (c) |
$578,113 |
$637,250 |
(a) |
Includes fees for employee benefit plan audits, consultation on financial accounting and reporting, and other attestation services. |
(b) |
Includes fees for tax return review and tax compliance assistance. |
(c) |
100% of fees paid in 2005 and 2004 were pre-approved by the Entergy Corporation Audit Committee. |
Entergy Audit Committee Guidelines for Pre-approval of Independent Auditor Services
The Audit Committee has adopted the following guidelines regarding the engagement of Entergy's independent auditor to perform services for Entergy:
1. |
The independent auditor will provide the Audit Committee, for approval, an annual engagement letter outlining the scope of services proposed to be performed during the fiscal year, including audit services and other permissible non-audit services (e.g. audit related services, tax services, and all other services). |
2. |
For other permissible services not included in the engagement letter, Entergy management will submit a description of the proposed service, including a budget estimate, to the Audit Committee for pre-approval. Management and the independent auditor must agree that the requested service is consistent with the SEC's rules on auditor independence prior to submission to the Audit Committee. The Audit Committee, at its discretion, will pre-approve permissible services and has established the following additional guidelines for permissible non-audit services provided by the independent auditor:
|
3. |
The Audit Committee will be informed quarterly as to the status of pre-approved services actually provided by the independent auditor. |
4. |
To ensure prompt handling of unexpected matters, the Audit Committee delegates to the Audit Committee Chair or its designee the authority to approve permissible services and fees. The Audit Committee Chair or designee will report action taken to the Audit Committee at the next scheduled Audit Committee meeting. |
5. |
The Vice President, Risk Management and General Auditor will be responsible for tracking all independent auditor fees and will report quarterly to the Audit Committee. |
PART IV
(a)1. |
Financial Statements and Independent Auditors' Reports for Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana Holdings, Entergy Louisiana, LLC, Entergy Mississippi, Entergy New Orleans, and System Energy are listed in the Table of Contents. |
(a)2. |
Financial Statement Schedules |
(a)3. |
Exhibits |
ENTERGY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY CORPORATION |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
J. Wayne Leonard (Chief Executive Officer and Director; Principal Executive Officer); Robert v.d. Luft (Chairman of the Board and Director); Leo P. Denault (Executive Vice President and Chief Financial Officer; Principal Financial Officer); Maureen S. Bateman, W. Frank Blount, Simon deBree, Claiborne P. Deming, Gary W. Edwards, Alexis M. Herman, Donald C. Hintz, Stuart L. Levenick, Kathleen A. Murphy, James R. Nichols, William A. Percy, II, W. J. Tauzin, and Steven V. Wilkinson (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
ENTERGY ARKANSAS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY ARKANSAS, INC. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
Hugh T. McDonald (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Jay A. Lewis (Vice President, Chief Financial Officer - Utility Operations Group; Principal Financial Officer); Leo P. Denault, Mark T. Savoff, and Richard J. Smith (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
ENTERGY GULF STATES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY GULF STATES, INC. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
Joseph F. Domino (Chairman of the Board, President, Chief Executive Officer-Texas, and Director; Principal Executive Officer); E. Renae Conley (President, Chief Executive Officer-Louisiana, and Director; Principal Executive Officer); Jay A. Lewis (Vice President, Chief Financial Officer - Utility Operations Group; Principal Financial Officer); Leo P. Denault, Mark T. Savoff, and Richard J. Smith (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
ENTERGY LOUISIANA HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY LOUISIANA HOLDINGS, INC. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
Michael D. Bakewell (President, Chief Executive Officer, and Director; Principal Executive Officer); Robert A. Malone (Treasurer and Director; Principal Financial Officer); William M. Mohl (Director).
By: /s/ Nathan E. Langston |
March 9, 2006 |
ENTERGY LOUISIANA, LLC
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY LOUISIANA, LLC |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
E. Renae Conley (Chair of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Jay A. Lewis (Vice President, Chief Financial Officer - Utility Operations Group; Principal Financial Officer); Leo P. Denault, Mark T. Savoff, and Richard J. Smith (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
ENTERGY MISSISSIPPI, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY MISSISSIPPI, INC. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
Carolyn C. Shanks (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Jay A. Lewis (Vice President, Chief Financial Officer - Utility Operations Group; Principal Financial Officer); Leo P. Denault, Mark T. Savoff, and Richard J. Smith (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
ENTERGY NEW ORLEANS, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
ENTERGY NEW ORLEANS, INC. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
Daniel F. Packer (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Jay A. Lewis (Vice President, Chief Financial Officer - Utility Operations Group; Principal Financial Officer); Tracie L. Boutte and Roderick K. West (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
SYSTEM ENERGY RESOURCES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
SYSTEM ENERGY RESOURCES, INC. |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof.
Signature |
Title |
Date |
/s/ Nathan E. Langston |
Senior Vice President and Chief Accounting Officer |
March 9, 2006 |
Gary J. Taylor (Chairman of the Board, President, Chief Executive Officer, and Director; Principal Executive Officer); Theodore H. Bunting, Jr. (Vice President, Chief Financial Officer - Nuclear Operations; Principal Financial Officer); Leo P. Denault and Steven C. McNeal (Directors).
By: /s/ Nathan E. Langston |
March 9, 2006 |
EXHIBIT 23(a)
CONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Post-Effective Amendments No. 3 and 5A on Form S-8 and their related prospectuses to Registration Statement No. 33-54298 of Entergy Corporation and Subsidiaries on Form S-4, Registration Statements No. 333-02503 and 333-22007 of Entergy Corporation and Subsidiaries on Form S-3, Registration Statements No. 333-55692, 333-68950, 333-75097, 333-90914, and 333-98179 of Entergy Corporation and Subsidiaries on Form S-8 of our reports dated March 9, 2006, relating to the consolidated financial statements (which report expresses an unqualified opinion and includes an explanatory paragraph regarding Entergy Corporation's change in 2003 in the method of accounting for asset retirement obligations), consolidated financial statement schedules, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy Corporation and Subsidiaries for the year ended December 31, 20 05.
We consent to the incorporation by reference in Registration Statements No. 333-00103, 333-05045, 333-109453, and 333-127780 of Entergy Arkansas, Inc. on Form S-3 of our reports dated March 9, 2006, relating to the financial statements of Entergy Arkansas, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph regarding Entergy Arkansas, Inc.'s change in 2003 in the method of accounting for asset retirement obligations), financial statement schedule, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy Arkansas, Inc. for the year ended December 31, 2005.
We consent to the incorporation by reference in Registration Statements No. 33-49739, 33-51181, 333-60957, 333-109923, and 333-123691 of Entergy Gulf States, Inc. on Form S-3 of our reports dated March 9, 2006, relating to the financial statements of Entergy Gulf States, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph regarding Entergy Gulf States, Inc.'s change in 2003 in the method of accounting for asset retirement obligations), financial statement schedule, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy Gulf States, Inc. for the year ended December 31, 2005.
We consent to the incorporation by reference in Registration Statements No. 333-01329 and 333-114174 of Entergy Louisiana, LLC on Form S-3 of our reports dated March 9, 2006, relating to the financial statements of Entergy Louisiana, LLC (which report expresses an unqualified opinion and includes an explanatory paragraph regarding Entergy Louisiana, LLC change in 2003 in the method of accounting for asset retirement obligations), financial statement schedule, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy Louisiana, LLC for the year ended December 31, 2005.
We consent to the incorporation by reference in Registration Statements No. 333-110675 and 333-124168 of Entergy Mississippi, Inc. on Form S-3 of our reports dated March 9, 2006, relating to the financial statements of Entergy Mississippi, Inc., financial statement schedule, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy Mississippi, Inc. for the year ended December 31, 2005.
We consent to the incorporation by reference in Registration Statement No. 333-113586 of Entergy New Orleans, Inc. (Debtor-in-Possession) on Form S-3 of our reports dated March 9, 2006, relating to the financial statements of Entergy New Orleans, Inc. (Debtor-in-Possession) (which report expresses an unqualified opinion and includes explanatory paragraphs regarding its filing for reorganization under Chapter 11 of the Federal Bankruptcy Code and the existence of matters that raise substantial doubt about its ability to continue as a going concern), financial statement schedule, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Entergy New Orleans, Inc. (Debtor-in-Possession) for the year ended December 31, 2005.
We consent to the incorporation by reference in Registration Statements No. 33-47662, 33-61189, and 333-06717 of System Energy Resources, Inc. on Form S-3 of our reports dated March 9, 2006, relating to the financial statements of System Energy Resources, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph regarding System Energy Resources, Inc.'s change in 2003 in the method of accounting for asset retirement obligations), and to management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of System Energy Resources, Inc. for the year ended December 31, 2005.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Entergy Corporation and Subsidiaries
Entergy Arkansas, Inc.
Entergy Gulf States, Inc.
Entergy Louisiana Holdings, Inc. and Subsidiaries
Entergy Louisiana, LLC
Entergy Mississippi, Inc.
Entergy New Orleans, Inc.
We have audited the consolidated financial statements of Entergy Corporation and Subsidiaries (the "Corporation") and we have also audited the financial statements of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana Holdings, Inc. and Subsidiaries and Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc. (Debtor-in-Possession), as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005 (collectively the "Companies"). We have also audited management's assessment of the effectiveness of the Corporation's and the respective Companies' internal control over financial reporting as of December 31, 2005, and the effectiveness of the Corporation's and the respective Companies' internal control over financial reporting as of December 31, 2005, and have issued our reports thereon dated March 9, 2006. Our reports on the financial statements of the Corporation, Entergy Arkansas, Inc., Ente rgy Gulf States, Inc., Entergy Louisiana, LLC, and Entergy Louisiana Holdings, Inc. and Subsidiaries, each express an unqualified opinion and include an explanatory paragraph regarding their change in 2003 in the method of accounting for asset retirement obligations. Our report on the financial statements of Entergy New Orleans, Inc (Debtor-in-Possession) expressed an unqualified opinion and includes explanatory paragraphs regarding its filing for reorganization under Chapter 11 of the Federal Bankruptcy Code and the existence of matters that raise substantial doubt about its ability to continue as a going concern. The financial statements described above and our reports thereon are included elsewhere in this 2005 Annual Report on Form 10-K. Our audits also included the financial statement schedules of the Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana Holdings, Inc. and Subsidiaries, Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc. (Debtor - -in-Possession) listed in Item 15. These financial statement schedules are the responsibility of the Corporation's and the respective Companies' managements. Our responsibility is to express an opinion based on our audits. We did not audit the financial statements of Entergy-Koch, LP, the Corporation's investment in which is accounted for by use of the equity method. The Corporation's equity in earnings of unconsolidated equity affiliates for the year ended December 31, 2003 includes $180,110,000 for Entergy-Koch, LP, which earnings were audited by other auditors whose report (which as to 2003 included an explanatory paragraph concerning a change in accounting for inventory held for trading purposes and energy trading contracts not qualifying as derivatives) has been furnished to us, and our opinion, insofar as it relates to the amount audited by other auditors included for such company, is based solely on the report of such other auditors. In our opinion, such financial statement schedules, when considere d in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 9, 2006
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule |
Page |
|
I |
Financial Statements of Entergy Corporation: |
|
Statements of Income - For the Years Ended December 31, 2005, 2004, and 2003 |
S-2 |
|
Statements of Cash Flows - For the Years Ended December 31, 2005, 2004, and 2003 |
S-3 |
|
Balance Sheets, December 31, 2005 and 2004 |
S-4 |
|
Statements of Retained Earnings, Comprehensive Income, and Paid-In Capital for the |
S-5 |
|
II |
Valuation and Qualifying Accounts 2005, 2004 and 2003: |
|
Entergy Corporation and Subsidiaries |
S-6 |
|
Entergy Arkansas, Inc. |
S-7 |
|
Entergy Gulf States, Inc. |
S-8 |
|
Entergy Louisiana Holdings, Inc. |
S-9 |
|
Entergy Louisiana, LLC |
S-10 |
|
Entergy Mississippi, Inc. |
S-11 |
|
Entergy New Orleans, Inc. |
S-12 |
Schedules other than those listed above are omitted because they are not required, not applicable, or the required information is shown in the financial statements or notes thereto.
Columns have been omitted from schedules filed because the information is not applicable.
ENTERGY CORPORATION |
||||||
SCHEDULE I - FINANCIAL STATEMENTS OF ENTERGY CORPORATION |
||||||
STATEMENTS OF INCOME |
||||||
For the Years Ended December 31, |
||||||
2005 |
2004 |
2003 |
||||
(In Thousands) |
||||||
Income: |
||||||
Equity in income of subsidiaries |
$937,975 |
$936,961 |
$945,514 |
|||
Interest on temporary investments |
27,358 |
37,859 |
36,400 |
|||
Total |
965,333 |
974,820 |
981,914 |
|||
Other Expenses (Income) and Deductions: |
||||||
Administrative and general expenses |
33,323 |
27,775 |
20,976 |
|||
Reimbursement on Subsidiary Stock Option Expenses |
(84,217) |
(53,613) |
(18,551) |
|||
Income taxes (credit) |
20,315 |
16,544 |
(7,916) |
|||
Taxes other than income |
1,196 |
1,754 |
753 |
|||
Interest |
96,385 |
72,836 |
59,709 |
|||
Total |
67,002 |
65,296 |
54,971 |
|||
Net Income |
$898,331 |
$909,524 |
$926,943 |
|||
See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. |
||||||
|
||||||
ENTERGY CORPORATION |
||||||
SCHEDULE I - FINANCIAL STATEMENTS OF ENTERGY CORPORATION |
||||||
STATEMENTS OF CASH FLOWS |
||||||
Year to Date December 31, |
||||||
2005 |
2004 |
2003 |
||||
(In Thousands) |
||||||
Operating Activities: |
||||||
Net income |
$898,331 |
$909,524 |
$926,943 |
|||
Noncash items included in net income: |
||||||
Equity in earnings of subsidiaries |
(937,975) |
(936,961) |
(945,514) |
|||
Deferred income taxes |
40,873 |
32,316 |
(2,811) |
|||
Depreciation |
372 |
237 |
591 |
|||
Changes in working capital: |
||||||
Receivables |
(8,220) |
9,433 |
(878) |
|||
Payables |
4,464 |
(678) |
(9,258) |
|||
Other working capital accounts |
(19,428) |
(237,727) |
174,956 |
|||
Common stock dividends received from subsidiaries |
423,953 |
825,022 |
424,993 |
|||
Other |
24,894 |
55,811 |
95,388 |
|||
Net cash flow provided by operating activities |
427,264 |
656,977 |
664,410 |
|||
Investing Activities: |
||||||
Investment in subsidiaries |
(336,869) |
(99,502) |
(254,894) |
|||
Capital expenditures |
(376) |
(460) |
874 |
|||
Change in money pool receivable - net |
(23,989) |
28,574 |
(29,942) |
|||
Changes in other temporary investments |
- |
10,328 |
(10,328) |
|||
Other |
- |
59,719 |
(59,719) |
|||
Net cash flow used in investing activities |
(361,234) |
(1,341) |
(354,009) |
|||
Financing Activities: |
||||||
Advances to subsidiaries |
14,009 |
(13,312) |
(7,254) |
|||
Common stock dividends paid |
(453,508) |
(427,901) |
(362,814) |
|||
Repurchase of common stock |
(878,188) |
(1,017,996) |
(8,135) |
|||
Notes receivable to/from associated companies |
(82,026) |
510,113 |
(111,595) |
|||
Proceeds from issuance of common stock |
106,068 |
170,237 |
217,521 |
|||
Proceeds from issuance of long-term debt |
2,698,237 |
2,593,654 |
2,909,387 |
|||
Retirement of long-term debt |
(1,470,000) |
(2,543,654) |
(2,875,000) |
|||
Net cash flow used in financing activities |
(65,408) |
(728,859) |
(237,890) |
|||
Net increase (decrease) in cash and cash equivalents |
622 |
(73,223) |
72,511 |
|||
Cash and cash equivalents at beginning of period |
7,175 |
80,398 |
7,887 |
|||
Cash and cash equivalents at end of period |
$7,797 |
$7,175 |
$80,398 |
|||
See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. |
||||||
|
||||||
ENTERGY CORPORATION |
||||
SCHEDULE I - FINANCIAL STATEMENTS OF ENTERGY CORPORATION |
||||
BALANCE SHEETS |
||||
December 31, |
||||
2005 |
2004 |
|||
ASSETS |
(In Thousands) |
|||
Current Assets: |
||||
Cash and cash equivalents: |
||||
Temporary cash investments - at cost, |
||||
which approximates market |
$7,797 |
$7,175 |
||
Total cash and cash equivalents |
7,797 |
7,175 |
||
Notes receivable - associated companies |
198,881 |
116,855 |
||
Accounts receivable - associated companies |
39,863 |
8,506 |
||
Other |
84,303 |
62,017 |
||
Total |
330,844 |
194,553 |
||
Investment in Wholly-owned Subsidiaries |
9,332,457 |
8,734,507 |
||
Deferred Debits and Other Assets |
545,642 |
556,643 |
||
Total |
$10,208,943 |
$9,485,703 |
||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||
Current Liabilities: |
||||
Accounts payable: |
||||
Associated companies |
$5,062 |
$2,190 |
||
Other |
2,047 |
1,308 |
||
Other current liabilities |
14,902 |
11,536 |
||
Total |
22,011 |
15,034 |
||
Deferred Credits and Noncurrent Liabilities |
259,185 |
223,982 |
||
Long-term debt |
2,185,000 |
950,000 |
||
Shareholders' Equity: |
||||
Common stock, $.01 par value, authorized |
||||
500,000,000 shares; issued 248,174,087 shares |
||||
in 2005 and in 2004 |
2,482 |
2,482 |
||
Paid-in capital |
4,817,637 |
4,835,375 |
||
Retained earnings |
5,428,407 |
4,984,302 |
||
Accumulated other comprehensive loss |
(343,819) |
(93,453) |
||
Less cost of treasury stock (40,644,602 shares in |
||||
2005 and 31,345,028 shares in 2004) |
2,161,960 |
1,432,019 |
||
Total common shareholders' equity |
7,742,747 |
8,296,687 |
||
Total |
$10,208,943 |
$9,485,703 |
||
See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. |
ENTERGY CORPORATION |
|||||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL |
|||||||||||||
For the Years Ended December 31, |
|||||||||||||
2005 |
2004 |
2003 |
|||||||||||
(In Thousands) |
|||||||||||||
RETAINED EARNINGS |
|||||||||||||
Retained Earnings - Beginning of period |
$4,984,302 |
$4,502,508 |
$3,938,693 |
||||||||||
Add: Earnings applicable to common stock |
898,331 |
$898,331 |
909,524 |
$909,524 |
926,943 |
$926,943 |
|||||||
Deduct: |
|||||||||||||
Dividends declared on common stock |
453,657 |
427,740 |
362,941 |
||||||||||
Capital stock and other expenses |
569 |
(10) |
187 |
||||||||||
Total |
454,226 |
427,730 |
363,128 |
||||||||||
Retained Earnings - End of period |
$5,428,407 |
$4,984,302 |
$4,502,508 |
||||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS |
|||||||||||||
Balance at beginning of period: |
|||||||||||||
Accumulated derivative instrument fair value changes |
($141,411) |
($25,811) |
$17,313 |
||||||||||
Other accumulated comprehensive income (loss) items |
47,958 |
18,016 |
(39,673) |
||||||||||
Total |
(93,453) |
(7,795) |
(22,360) |
||||||||||
Net derivative instrument fair value changes |
|||||||||||||
arising during the period (net of tax (benefit) of
|
|
|
|
|
|
(43,124) |
|||||||
Foreign currency translation adjustments (net of tax |
|
|
|
|
|
4,169 |
|||||||
Minimum pension liability adjustment
(net of tax expense |
|
|
|
|
|
1,153 |
|||||||
Net unrealized investment gains
(net of tax expense of |
|
|
|
|
|
52,367 |
|||||||
Balance at end of period: |
|||||||||||||
Accumulated derivative instrument fair value changes |
($392,614) |
($141,411) |
(25,811) |
||||||||||
Other accumulated comprehensive income items |
48,795 |
47,958 |
18,016 |
||||||||||
Total |
($343,819) |
($93,453) |
($7,795) |
||||||||||
Comprehensive Income |
$647,965 |
$823,866 |
$941,508 |
||||||||||
PAID-IN CAPITAL |
|||||||||||||
Paid-in Capital - Beginning of period |
$4,835,375 |
$4,767,615 |
$4,666,753 |
||||||||||
Add (Deduct): |
|||||||||||||
Issuance of equity units |
(39,904) |
- |
- |
||||||||||
Common stock issuance related to stock plans |
22,166 |
67,760 |
100,862 |
||||||||||
(17,738) |
67,760 |
100,862 |
|||||||||||
Paid-in Capital - End of period |
$4,817,637 |
$4,835,375 |
$4,767,615 |
||||||||||
See Entergy Corporation and Subsidiaries Notes to Financial Statements in Part II, Item 8. |
|||||||||||||
|
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Years Ended December 31, 2005, 2004, and 2003 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $23,758 | $45,169 | $12,700 | $56,227 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($124,126) | $39,172 | $734,239 | ($819,193) | ||||
Injuries and damages (Note 2) | 35,489 | 16,691 | 16,132 | 36,048 | ||||
Environmental | 104,449 | 1,191 | 30,232 | 75,408 | ||||
Total | $15,812 | $57,054 | $780,603 | ($707,737) | ||||
Year ended December 31, 2004 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $25,976 | $5,479 | $7,697 | $23,758 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($123,314) | $49,950 | $50,762 | ($124,126) | ||||
Injuries and damages (Note 2) | 34,189 | 28,936 | 27,636 | 35,489 | ||||
Environmental | 76,537 | 81,652 | 53,740 | 104,449 | ||||
Total | ($12,588) | $160,538 | $132,138 | $15,812 | ||||
Year ended December 31, 2003 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $27,285 | $12,598 | $13,907 | $25,976 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($93,941) | $108,221 | $137,594 | ($123,314) | ||||
Injuries and damages (Note 2) | 30,629 | 29,255 | 25,695 | 34,189 | ||||
Environmental | 61,488 | 26,644 | 11,595 | 76,537 | ||||
Total | ($1,824) | $164,120 | $174,884 | ($12,588) | ||||
___________ | ||||||||
Notes: | ||||||||
(1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. | ||||||||
(2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. | ||||||||
ENTERGY ARKANSAS, INC. | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Years Ended December 31, 2005, 2004, and 2003 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $11,039 | $5,837 | $1,099 | $15,777 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($29,027) | $4,810 | $22,233 | ($46,450) | ||||
Injuries and damages (Note 2) | 2,613 | 1,692 | 2,032 | 2,273 | ||||
Environmental | 1,565 | 1,454 | 1,458 | 1,561 | ||||
Total | ($24,849) | $7,956 | $25,723 | ($42,616) | ||||
Year ended December 31, 2004 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $9,020 | $3,030 | $1,011 | $11,039 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($25,283) | $10,476 | $14,220 | ($29,027) | ||||
Injuries and damages (Note 2) | 3,353 | 2,849 | 3,589 | 2,613 | ||||
Environmental | 1,729 | 1,761 | 1,925 | 1,565 | ||||
Total | ($20,201) | $15,086 | $19,734 | ($24,849) | ||||
Year ended December 31, 2003 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $8,031 | $2,626 | $1,637 | $9,020 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($13,789) | $31,452 | $42,946 | ($25,283) | ||||
Injuries and damages (Note 2) | 2,700 | 2,950 | 2,297 | 3,353 | ||||
Environmental | 1,624 | 2,280 | 2,175 | 1,729 | ||||
Total | ($9,465) | $36,682 | $47,418 | ($20,201) | ||||
___________ | ||||||||
Notes: | ||||||||
(1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. | ||||||||
(2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. | ||||||||
ENTERGY GULF STATES, INC. | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Years Ended December 31, 2005, 2004, and 2003 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $2,687 | $3,858 | $1,751 | $4,794 | ||||
Accumulated Provisions | ||||||||
Not Deducted from Assets-- | ||||||||
Property insurance | ($57,133) | $7,827 | $287,887 | ($337,193) | ||||
Injuries and damages (Note 2) | 8,970 | 4,032 | 3,971 | 9,031 | ||||
Environmental | 4,482 | 2,942 | 3,129 | 4,295 | ||||
Total | ($43,681) | $14,801 | $294,987 | ($323,867) | ||||
Year ended December 31, 2004 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $4,856 | $889 | $3,058 | $2,687 | ||||
Accumulated Provisions | ||||||||
Not Deducted from Assets-- | ||||||||
Property insurance | ($57,353) | $7,673 | $7,453 | ($57,133) | ||||
Injuries and damages (Note 2) | 11,554 | 12,288 | 14,872 | 8,970 | ||||
Environmental | 14,711 | 20,201 | 30,430 | 4,482 | ||||
Total | ($31,088) | $40,162 | $52,755 | ($43,681) | ||||
Year ended December 31, 2003 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $5,893 | $4,484 | $5,521 | $4,856 | ||||
Accumulated Provisions | ||||||||
Not Deducted from Assets-- | ||||||||
Property insurance | ($45,287) | $26,988 | $39,054 | ($57,353) | ||||
Injuries and damages (Note 2) | 8,284 | 8,805 | 5,535 | 11,554 | ||||
Environmental | 15,417 | 3,319 | 4,025 | 14,711 | ||||
Total | ($21,586) | $39,112 | $48,614 | ($31,088) | ||||
___________ | ||||||||
Notes: | ||||||||
(1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. | ||||||||
(2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. | ||||||||
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Years Ended December 31, 2005, 2004, and 2003 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $3,135 | $4,435 | $1,429 | $6,141 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($41,705) | $18,593 | $204,453 | ($227,565) | ||||
Injuries and damages (Note 2) | 10,396 | 8,319 | 7,987 | 10,728 | ||||
Environmental | 8,064 | (2,981) | 1,046 | 4,037 | ||||
Total | ($23,245) | $23,931 | $213,486 | ($212,800) | ||||
Year ended December 31, 2004 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $4,487 | $473 | $1,825 | $3,135 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($40,878) | $20,146 | $20,973 | ($41,705) | ||||
Injuries and damages (Note 2) | 8,537 | 6,188 | 4,329 | 10,396 | ||||
Environmental | 7,245 | 2,589 | 1,770 | 8,064 | ||||
Total | ($25,096) | $28,923 | $27,072 | ($23,245) | ||||
Year ended December 31, 2003 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $4,090 | $2,152 | $1,755 | $4,487 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($39,048) | $36,691 | $38,521 | ($40,878) | ||||
Injuries and damages (Note 2) | 9,114 | 5,256 | 5,833 | 8,537 | ||||
Environmental | 8,157 | 2,441 | 3,353 | 7,245 | ||||
Total | ($21,777) | $44,388 | $47,707 | ($25,096) | ||||
___________ | ||||||||
Notes: | ||||||||
(1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. | ||||||||
(2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. | ||||||||
ENTERGY LOUISIANA, LLC | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Year Ended December 31, 2005 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $3,135 | $4,435 | $1,429 | $6,141 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($41,705) | $18,593 | $204,453 | ($227,565) | ||||
Injuries and damages (Note 2) | 10,396 | 8,319 | 7,987 | 10,728 | ||||
Environmental | 8,064 | (2,981) | 1,046 | 4,037 | ||||
Total | ($23,245) | $23,931 | $213,486 | ($212,800) | ||||
ENTERGY MISSISSIPPI, INC. | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Years Ended December 31, 2005, 2004, and 2003 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $1,126 | $1,385 | $685 | $1,826 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | $2,473 | $7,942 | $94,087 | ($83,672) | ||||
Injuries and damages (Note 2) | 5,549 | 834 | 1,501 | 4,882 | ||||
Environmental | 890 | 342 | 528 | 704 | ||||
Total | $8,912 | $9,118 | $96,116 | ($78,086) | ||||
Year ended December 31, 2004 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $1,375 | $357 | $606 | $1,126 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($3,481) | $10,916 | $4,962 | $2,473 | ||||
Injuries and damages (Note 2) | 5,414 | 2,938 | 2,803 | 5,549 | ||||
Environmental | 495 | 1,236 | 841 | 890 | ||||
Total | $2,428 | $15,090 | $8,606 | $8,912 | ||||
Year ended December 31, 2003 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $1,633 | $587 | $845 | $1,375 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | ($2,937) | $12,323 | $12,867 | ($3,481) | ||||
Injuries and damages (Note 2) | 7,928 | 7,410 | 9,924 | 5,414 | ||||
Environmental | 667 | 1,482 | 1,654 | 495 | ||||
Total | $5,658 | $21,215 | $24,445 | $2,428 | ||||
___________ | ||||||||
Notes: | ||||||||
(1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. | ||||||||
(2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. | ||||||||
ENTERGY NEW ORLEANS, INC. | ||||||||
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | ||||||||
Years Ended December 31, 2005, 2004, and 2003 | ||||||||
(In Thousands) | ||||||||
Column A | Column B | Column C | Column D | Column E | ||||
Other | ||||||||
Additions | Changes | |||||||
Deductions | ||||||||
Balance at | from | Balance | ||||||
Beginning | Charged to Income | Provisions | at End | |||||
Description | of Period | or Regulatory Assets | (Note 1) | of Period | ||||
Year ended December 31, 2005 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $3,492 | $29,645 | $7,715 | $25,422 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | $1,267 | $0 | $123,205 | ($121,938) | ||||
Injuries and damages (Note 2) | 5,265 | 1,182 | 677 | 5,770 | ||||
Environmental | 766 | (566) | 69 | 131 | ||||
Total | $7,298 | $616 | $123,951 | ($116,037) | ||||
Year ended December 31, 2004 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $3,104 | $612 | $224 | $3,492 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | $3,682 | $739 | $3,154 | $1,267 | ||||
Injuries and damages (Note 2) | 4,077 | 3,231 | 2,043 | 5,265 | ||||
Environmental | 663 | 866 | 763 | 766 | ||||
Total | $8,422 | $4,836 | $5,960 | $7,298 | ||||
Year ended December 31, 2003 | ||||||||
Accumulated Provisions | ||||||||
Deducted from Assets-- | ||||||||
Doubtful Accounts | $4,774 | $2,479 | $4,149 | $3,104 | ||||
Accumulated Provisions Not | ||||||||
Deducted from Assets: | ||||||||
Property insurance | $7,120 | $767 | $4,205 | $3,682 | ||||
Injuries and damages (Note 2) | 2,603 | 2,514 | 1,040 | 4,077 | ||||
Environmental | 623 | 428 | 388 | 663 | ||||
Total | $10,346 | $3,709 | $5,633 | $8,422 | ||||
___________ | ||||||||
Notes: | ||||||||
(1) Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amounts previously written off. | ||||||||
(2) Injuries and damages provision is provided to absorb all current expenses as appropriate and for the estimated cost of settling claims for injuries and damages. | ||||||||
EXHIBIT INDEX
The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretofore been filed with the SEC, respectively, as the exhibits and in the file numbers indicated and are incorporated herein by reference. The exhibits marked with a (+) are management contracts or compensatory plans or arrangements required to be filed herewith and required to be identified as such by Item 15 of Form 10-K. Reference is made to a duplicate list of exhibits being filed as a part of this Form 10-K, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being physically filed with this Form 10-K.
(3) Articles of Incorporation and By-laws
Entergy Corporation
(a) 1 -- |
Certificate of Incorporation of Entergy Corporation dated December 31, 1993 (A-1(a) to Rule 24 Certificate in 70-8059). |
(a) 2 -- |
By-Laws of Entergy Corporation as amended December 2, 2005, and as presently in effect (3(ii) to Form 8-K dated December 8, 2005 in 1-11299). |
System Energy
(b) 1 -- |
Amended and Restated Articles of Incorporation of System Energy and amendments thereto through April 28, 1989 (A-1(a) to Form U-1 in 70-5399). |
(b) 2 -- |
By-Laws of System Energy effective July 6, 1998, and as presently in effect (3(f) to Form 10-Q for the quarter ended June 30, 1998 in 1-9067). |
Entergy Arkansas
(c) 1 -- |
Amended and Restated Articles of Incorporation of Entergy Arkansas, as amended, effective August 22, 2005 (3(ii) to Form 8-K dated August 22, 2005 in 1-10764). |
(c) 2 -- |
By-Laws of Entergy Arkansas effective November 26, 1999, and as presently in effect (3(ii)(c) to Form 10-K for the year ended December 31, 1999 in 1-10764). |
Entergy Gulf States
(d) 1 -- |
Restated Articles of Incorporation of Entergy Gulf States effective November 17, 1999 (3(i)(d)1 to Form 10-K for the year ended December 31, 1999 in 1-27031). |
(d) 2 -- |
By-Laws of Entergy Gulf States effective November 26, 1999, and as presently in effect (3(ii)(d) to Form 10-K for the year ended December 31, 1999 in 1-27031). |
Entergy Louisiana Holdings, Inc.
*(e) 1 -- |
Amended and Restated Articles of Incorporation of Entergy Louisiana Holdings, Inc. effective March 8, 2006. |
(e) 2 -- |
By-Laws of Entergy Louisiana Holdings, Inc. effective December 31, 2005, and as presently in effect (3(b) to Form 8-K dated January 6, 2006 in 1-8474). |
Entergy Louisiana, LLC
(f) 1 -- |
Articles of Organization of Entergy Louisiana, LLC effective December 31, 2005 (3(c) to Form 8-K dated January 6, 2006 in 1-32718). |
(f) 2 -- |
Regulations of Entergy Louisiana, LLC effective December 31, 2005, and as presently in effect (3(d) to Form 8-K dated January 6, 2006 in 1-32718). |
Entergy Mississippi
(g) 1 -- |
Amended and Restated Articles of Incorporation of Entergy Mississippi effective June 21, 2005 (A-1(b) to Rule 24 Certificate dated February 6, 2006 in 70-10157). |
(g) 2 -- |
By-Laws of Entergy Mississippi effective November 26, 1999, and as presently in effect (3(ii)(f) to Form 10-K for the year ended December 31, 1999 in 0-320). |
Entergy New Orleans
(h) 1 -- |
Amended and Restated Articles of Incorporation of Entergy New Orleans effective November 15, 1999 (3(a) to Form S-3 in 333-95599). |
(h) 2 -- |
By-Laws of Entergy New Orleans effective November 30, 1999, and as presently in effect (3(b) to Form S-3 in File No. 333-95599). |
(4) Instruments Defining Rights of Security Holders, Including Indentures
Entergy Corporation
(a) 1 -- |
See (4)(b) through (4)(g) below for instruments defining the rights of holders of long-term debt of System Energy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans. |
(a) 2 -- |
Credit Agreement, dated as of May 25, 2005, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Lehman Brothers Bank (FSB), Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Mellon Bank, N.A., KBC Bank N.V., Mizuho Corporate Bank Limited, West LB AG, New York Branch, and UFJ Bank Limited, Citibank, N.A., as Administrative Agent and LC Issuing Bank, and ABN AMRO Bank, N.V., as LC Issuing Bank (4(d) to Form 10-Q for the quarter ended June 30, 2005 in 1-11299). |
(a) 3 -- |
Amendment dated as of September 22, 2005, to the Credit Agreement, dated as of May 25, 2005, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Lehman Brothers Bank (FSB), Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Mellon Bank, N.A., KBC Bank N.V., Mizuho Corporate Bank Limited, West LB AG, New York Branch, and UFJ Bank Limited, Citibank, N.A., as Administrative Agent and LC Issuing Bank, and ABN AMRO Bank, N.V., as LC Issuing Bank (4(a) to Form 8-K dated September 28, 2005 in 1-11299). |
(a) 4 -- |
Amended and Restated Credit Agreement, dated as of June 30, 2005, among Entergy Corporation, as Borrower, Bayerische Hypo- und Vereinsbank AG, New York Branch, as Bank, and Bayerische Hypo-und Vereinsbank AG, New York Branch, as Administrative Agent (4(f) to Form 10-Q for the quarter ended June 30, 2005 in 1-11299). |
(a) 5 -- |
Amendment dated as of September 21, 2005, to the Amended and Restated Credit Agreement, dated as of June 30, 2005, among Entergy Corporation, as Borrower, Bayerische Hypo- und Vereinsbank AG, New York Branch, as Bank, and Bayerische Hypo-und Vereinsbank AG, New York Branch, as Administrative Agent (4(b) to Form 8-K dated September 28, 2005 in 1-11299). |
(a) 6 -- |
Amended and Restated Credit Agreement, dated as of June 30, 2005, among Entergy Corporation, as Borrower, Bayerische Hypo- und Vereinsbank AG, New York Branch, as Bank, and Bayerische Hypo-und Vereinsbank AG, New York Branch, as Administrative Agent (4(g) to Form 10-Q for the quarter ended June 30, 2005 in 1-11299). |
(a) 7 -- |
Amendment dated as of September 21, 2005, to the Amended and Restated Credit Agreement, dated as of June 30, 2005, among Entergy Corporation, as Borrower, Bayerische Hypo- und Vereinsbank AG, New York Branch, as Bank, and Bayerische Hypo-und Vereinsbank AG, New York Branch, as Administrative Agent (4(c) to Form 8-K dated September 28, 2005 in 1-11299). |
(a) 8 -- |
DIP Credit Agreement, dated as of September 26, 2005, between Entergy New Orleans, Inc., as a debtor-in-possession and Entergy Corporation, as Lender (4(d) to Form 8-K dated September 28, 2005 in 1-11299). |
(a) 9 -- |
Credit Agreement, dated as of December 7, 2005, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., BNP Paribas, J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Barclays Bank PLC, Calyon New York Branch, KeyBank National Association, Morgan Stanley Bank, The Bank of New York, Wachovia Bank, N.A., Credit Suisse First Boston (Cayman Islands Branch), Lehman Brothers Bank (FSB), Regions Bank, Societe Generale, Union Bank of California, N.A., Bayerische Hypo-und Vereinsbank AG (New York Branch), Mellon Bank, N.A., and Mizuho Corporate Bank Limited, and Citibank, N.A., as Administrative Agent and LC Issuing Bank (4 to Form 8-K dated December 13, 2005 in 1-11299). |
(a) 10 -- |
Indenture, dated as of December 1, 2002, between Entergy Corporation and Deutsche Bank Trust Company Americas, as Trustee (10(a)4 to Form 10-K for the year ended December 31, 2002 in 1-11299). |
*(a) 11 -- |
Supplemental No. 1, dated as of December 20, 2005, between Entergy Corporation and Deutsche Bank Trust Company Americas, as Trustee. |
*(a) 12 -- |
Purchase Contract and Pledge Agreement, dated as of December 20, 2005, among Entergy Corporation, The Bank of New York, as Purchase Contract Agent, and JP Morgan Chase Bank, N.A., as Collateral Agent, Custodial Agent, and Securities Intermediary. |
*(a) 13 -- |
Remarketing Agreement, dated as of December 20, 2005, among Entergy Corporation, Citigroup Global Markets, Inc., and The Bank of New York. |
(a) 14 -- |
Officer' Certificate for Entergy Corporation relating to 7.75% Senior Notes due December 15, 2009 (10(a)5 to Form 10-K for the year ended December 31, 2002 in 1-11299). |
Officer' Certificate for Entergy Corporation relating to 6.17% Senior Notes due March 15, 2008 (4(c) to Form 10-Q for the quarter ended March 31, 2003 in 1-11299). |
|
(a) 16 -- |
Officer' Certificate for Entergy Corporation relating to 7.06% Senior Notes due March 15, 2011 (4(d) to Form 10-Q for the quarter ended March 31, 2003 in 1-11299). |
(a) 17 -- |
Officer' Certificate for Entergy Corporation relating to 6.58% Senior Notes due May 15, 2010 (4(d) to Form 10-Q for the quarter ended June 30, 2003 in 1-11299). |
(a) 18 -- |
Officer' Certificate for Entergy Corporation relating to 6.13% Senior Notes due September 15, 2008 (4(a) to Form 10-Q for the quarter ended September 30, 2003 in 1-11299). |
(a) 19 -- |
Officer' Certificate for Entergy Corporation relating to 6.23% Senior Notes due March 15, 2008 (4(a)9 to Form 10-K for the year ended December 31, 2003 in 1-11299). |
(a) 20 -- |
Officer' Certificate for Entergy Corporation relating to 6.90% Senior Notes due November 15, 2010 (4(a)10 to Form 10-K for the year ended December 31, 2003 in 1-11299). |
System Energy
(b) 1 -- |
Mortgage and Deed of Trust, dated as of June 15, 1977, as amended by twenty-two Supplemental Indentures (A-1 in 70-5890 (Mortgage); B and C to Rule 24 Certificate in 70-5890 (First); B to Rule 24 Certificate in 70-6259 (Second); 20(a)-5 to Form 10-Q for the quarter ended June 30, 1981 in 1-3517 (Third); A-1(e)-1 to Rule 24 Certificate in 70-6985 (Fourth); B to Rule 24 Certificate in 70-7021 (Fifth); B to Rule 24 Certificate in 70-7021 (Sixth); A-3(b) to Rule 24 Certificate in 70-7026 (Seventh); A-3(b) to Rule 24 Certificate in 70-7158 (Eighth); B to Rule 24 Certificate in 70-7123 (Ninth); B-1 to Rule 24 Certificate in 70-7272 (Tenth); B-2 to Rule 24 Certificate in 70-7272 (Eleventh); B-3 to Rule 24 Certificate in 70-7272 (Twelfth); B-1 to Rule 24 Certificate in 70-7382 (Thirteenth); B-2 to Rule 24 Certificate in 70-7382 (Fourteenth); A-2(c) to Rule 24 Certificate in 70-7946 (Fifteenth); A-2(c) to Rule 24 Certificate in 70-7946 (Sixteenth); A-2(d) to Rule 24 Certificate in 70-7946 (Seventeenth); A-2(e) to Rule 24 Certificate dated May 4, 1993 in 70-7946 (Eighteenth); A-2(g) to Rule 24 Certificate dated May 6, 1994 in 70-7946 (Nineteenth); A-2(a)(1) to Rule 24 Certificate dated August 8, 1996 in 70-8511 (Twentieth); A-2(a)(2) to Rule 24 Certificate dated August 8, 1996 in 70-8511 (Twenty-first); and A-2(a) to Rule 24 Certificate dated October 4, 2002 in 70-9753 (Twenty-second)). |
(b) 2 -- |
Facility Lease No. 1, dated as of December 1, 1988, between Meridian Trust Company and Stephen M. Carta (Steven Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (1) to Rule 24 Certificate dated April 21, 1989 in 70-7561), Lease Supplement No. 2 dated as of January 1, 1994 (B-3(d) to Rule 24 Certificate dated January 31, 1994 in 70-8215), and Lease Supplement No. 3 dated as of May 1, 2004 (B-3(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182). |
(b) 3 -- |
Facility Lease No. 2, dated as of December 1, 1988 between Meridian Trust Company and Stephen M. Carta (Steven Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (2) to Rule 24 Certificate dated April 21, 1989 in 70-7561), Lease Supplement No. 2 dated as of January 1, 1994 (B-4(d) Rule 24 Certificate dated January 31, 1994 in 70-8215), and Lease Supplement No. 3 dated as of May 1, 2004 (B-4(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182). |
Entergy Arkansas
(c) 1 -- |
Mortgage and Deed of Trust, dated as of October 1, 1944, as amended by sixty-five Supplemental Indentures (7(d) in 2-5463 (Mortgage); 7(b) in 2-7121 (First); 7(c) in 2-7605 (Second); 7(d) in 2-8100 (Third); 7(a)-4 in 2-8482 (Fourth); 7(a)-5 in 2-9149 (Fifth); 4(a)-6 in 2-9789 (Sixth); 4(a)-7 in 2-10261 (Seventh); 4(a)-8 in 2-11043 (Eighth); 2(b)-9 in 2-11468 (Ninth); 2(b)-10 in 2-15767 (Tenth); D in 70-3952 (Eleventh); D in 70-4099 (Twelfth); 4(d) in 2-23185 (Thirteenth); 2(c) in 2-24414 (Fourteenth); 2(c) in 2-25913 (Fifteenth); 2(c) in 2-28869 (Sixteenth); 2(d) in 2-28869 (Seventeenth); 2(c) in 2-35107 (Eighteenth); 2(d) in 2-36646 (Nineteenth); 2(c) in 2-39253 (Twentieth); 2(c) in 2-41080 (Twenty-first); C-1 to Rule 24 Certificate in 70-5151 (Twenty-second); C-1 to Rule 24 Certificate in 70-5257 (Twenty-third); C to Rule 24 Certificate in 70-5343 (Twenty-fourth); C-1 to Rule 24 Certificate in 70-5404 (Twenty-fifth); C to Rule 24 Certificate in 70-5502 (Twenty-sixth); C-1 to Rule 24 Certificate in 70-5556 (Twenty-seventh); C-1 to Rule 24 Certificate in 70-5693 (Twenty-eighth); C-1 to Rule 24 Certificate in 70-6078 (Twenty-ninth); C-1 to Rule 24 Certificate in 70-6174 (Thirtieth); C-1 to Rule 24 Certificate in 70-6246 (Thirty-first); C-1 to Rule 24 Certificate in 70-6498 (Thirty-second); A-4b-2 to Rule 24 Certificate in 70-6326 (Thirty-third); C-1 to Rule 24 Certificate in 70-6607 (Thirty-fourth); C-1 to Rule 24 Certificate in 70-6650 (Thirty-fifth); C-1 to Rule 24 Certificate dated December 1, 1982 in 70-6774 (Thirty-sixth); C-1 to Rule 24 Certificate dated February 17, 1983 in 70-6774 (Thirty-seventh); A-2(a) to Rule 24 Certificate dated December 5, 1984 in 70-6858 (Thirty-eighth); A-3(a) to Rule 24 Certificate in 70-7127 (Thirty-ninth); A-7 to Rule 24 Certificate in 70-7068 (Fortieth); A-8(b) to Rule 24 Certificate dated July 6, 1989 in 70-7346 (Forty-first); A-8(c) to Rule 24 Certificate dated February 1, 1990 in 70-7346 (Forty-second); 4 to Form 10-Q for the quarter ended September 30, 1990 in 1-10764 (Forty-third); A-2(a) to Rule 24 Certificate dated November 30, 1990 in 70-7802 (Forty-fourth); A-2(b) to Rule 24 Certificate dated January 24, 1991 in 70-7802 (Forty-fifth); 4(d)(2) in 33-54298 (Forty-sixth); 4(c)(2) to Form 10-K for the year ended December 31, 1992 in 1-10764 (Forty-seventh); 4(b) to Form 10-Q for the quarter ended June 30, 1993 in 1-10764 (Forty-eighth); 4(c) to Form 10-Q for the quarter ended June 30, 1993 in 1-10764 (Forty-ninth); 4(b) to Form 10-Q for the quarter ended September 30, 1993 in 1-10764 (Fiftieth); 4(c) to Form 10-Q for the quarter ended September 30, 1993 in 1-10764 (Fifty-first); 4(a) to Form 10-Q for the quarter ended June 30, 1994 in 1-10764 (Fifty-second); C-2 to Form U5S for the year ended December 31, 1995 (Fifty-third); C-2(a) to Form U5S for the year ended December 31, 1996 (Fifty-fourth); 4(a) to Form 10-Q for the quarter ended March 31, 2000 in 1-10764 (Fifty-fifth); 4(a) to Form 10-Q for the quarter ended September 30, 2001 in 1-10764 (Fifty-sixth); C-2(a) to Form U5S for the year ended December 31, 2001 (Fifty-seventh); 4(c)1 to Form 10-K for the year December 31, 2002 in 1-10764 (Fifty-eighth); 4(a) to Form 10-Q for the quarter ended June 30, 2003 in 1-10764 (Fifty-ninth); 4(f) to Form 10-Q for the quarter ended June 30, 2003 in 1-10764 (Sixtieth); 4(h) to Form 10-Q for the quarter ended June 30, 2003 in 1-10764 (Sixty-first); 4(e) to Form 10-Q for the quarter ended September 30, 2004 in 1-10764 (Sixty-second); 4(c)1 to Form 10-K for the year December 31, 2004 in 1-10764 (Sixty-third); C-2(a) to Form U5S for the year ended December 31, 2004 (Sixty-fourth); and 4(c) to Form 10-Q for the quarter ended June 30, 2005 in 1-10764 (Sixty-fifth)). |
Entergy Gulf States
(d) 1 -- |
Indenture of Mortgage, dated September 1, 1926, as amended by certain Supplemental Indentures (B-a-I-1 in Registration No. 2-2449 (Mortgage); 7-A-9 in Registration No. 2-6893 (Seventh); B to Form 8-K dated September 1, 1959 (Eighteenth); B to Form 8-K dated February 1, 1966 (Twenty-second); B to Form 8-K dated March 1, 1967 (Twenty-third); C to Form 8-K dated March 1, 1968 (Twenty-fourth); B to Form 8-K dated November 1, 1968 (Twenty-fifth); B to Form 8-K dated April 1, 1969 (Twenty-sixth); 2-A-8 in Registration No. 2-66612 (Thirty-eighth); 4-2 to Form 10-K for the year ended December 31, 1984 in 1-27031 (Forty-eighth); 4-2 to Form 10-K for the year ended December 31, 1988 in 1-27031 (Fifty-second); 4 to Form 10-K for the year ended December 31, 1991 in 1-27031 (Fifty-third); 4 to Form 8-K dated July 29, 1992 in 1-27031 (Fifth-fourth); 4 to Form 10-K dated December 31, 1992 in 1-27031 (Fifty-fifth); 4 to Form 10-Q for the quarter ended March 31, 1993 in 1-27031 (Fifty-sixth); 4-2 to Amendment No. 9 to Registration No. 2-76551 (Fifty-seventh); 4(b) to Form 10-Q for the quarter ended March 31,1999 in 1-27031 (Fifty-eighth); A-2(a) to Rule 24 Certificate dated June 23, 2000 in 70-8721 (Fifty-ninth); A-2(a) to Rule 24 Certificate dated September 10, 2001 in 70-9751 (Sixtieth); A-2(b) to Rule 24 Certificate dated November 18, 2002 in 70-9751 (Sixty-first); A-2(c) to Rule 24 Certificate dated December 6, 2002 in 70-9751 (Sixty-second); A-2(d) to Rule 24 Certificate dated June 16, 2003 in 70-9751 (Sixty-third); A-2(e) to Rule 24 Certificate dated June 27, 2003 in 70-9751 (Sixty-fourth); A-2(f) to Rule 24 Certificate dated July 11, 2003 in 70-9751 (Sixty-fifth); A-2(g) to Rule 24 Certificate dated July 28, 2003 in 70-9751 (Sixty-sixth); A-3(i) to Rule 24 Certificate dated November 4, 2004 in 70-10158 (Sixty-seventh); A-3(ii) to Rule 24 Certificate dated November 23, 2004 in 70-10158 (Sixty-eighth); A-3(iii) to Rule 24 Certificate dated February 16, 2005 in 70-10158 (Sixty-ninth); A-3(iv) to Rule 24 Certificate dated June 2, 2005 in 70-10158 (Seventieth); A-3(v) to Rule 24 Certificate dated July 21, 2005 in 70-10158 (Seventy-first); A-3(vi) to Rule 24 Certificate dated October 7, 2005 in 70-10158 (Seventy-second); and A-3(vii) to Rule 24 Certificate dated December 19, 2005 in 70-10158 (Seventy-third)). |
(d) 2 -- |
Indenture, dated March 21, 1939, accepting resignation of The Chase National Bank of the City of New York as trustee and appointing Central Hanover Bank and Trust Company as successor trustee (B-a-1-6 in Registration No. 2-4076). |
Entergy Louisiana, LLC
(e) 1 -- |
Mortgage and Deed of Trust, dated as of April 1, 1944, as amended by sixty-four Supplemental Indentures (7(d) in 2-5317 (Mortgage); 7(b) in 2-7408 (First); 7(c) in 2-8636 (Second); 4(b)-3 in 2-10412 (Third); 4(b)-4 in 2-12264 (Fourth); 2(b)-5 in 2-12936 (Fifth); D in 70-3862 (Sixth); 2(b)-7 in 2-22340 (Seventh); 2(c) in 2-24429 (Eighth); 4(c)-9 in 2-25801 (Ninth); 4(c)-10 in 2-26911 (Tenth); 2(c) in 2-28123 (Eleventh); 2(c) in 2-34659 (Twelfth); C to Rule 24 Certificate in 70-4793 (Thirteenth); 2(b)-2 in 2-38378 (Fourteenth); 2(b)-2 in 2-39437 (Fifteenth); 2(b)-2 in 2-42523 (Sixteenth); C to Rule 24 Certificate in 70-5242 (Seventeenth); C to Rule 24 Certificate in 70-5330 (Eighteenth); C-1 to Rule 24 Certificate in 70-5449 (Nineteenth); C-1 to Rule 24 Certificate in 70-5550 (Twentieth); A-6(a) to Rule 24 Certificate in 70-5598 (Twenty-first); C-1 to Rule 24 Certificate in 70-5711 (Twenty-second); C-1 to Rule 24 Certificate in 70-5919 (Twenty-third); C-1 to Rule 24 Certificate in 70-6102 (Twenty-fourth); C-1 to Rule 24 Certificate in 70-6169 (Twenty-fifth); C-1 to Rule 24 Certificate in 70-6278 (Twenty-sixth); C-1 to Rule 24 Certificate in 70-6355 (Twenty-seventh); C-1 to Rule 24 Certificate in 70-6508 (Twenty-eighth); C-1 to Rule 24 Certificate in 70-6556 (Twenty-ninth); C-1 to Rule 24 Certificate in 70-6635 (Thirtieth); C-1 to Rule 24 Certificate in 70-6834 (Thirty-first); C-1 to Rule 24 Certificate in 70-6886 (Thirty-second); C-1 to Rule 24 Certificate in 70-6993 (Thirty-third); C-2 to Rule 24 Certificate in 70-6993 (Thirty-fourth); C-3 to Rule 24 Certificate in 70-6993 (Thirty-fifth); A-2(a) to Rule 24 Certificate in 70-7166 (Thirty-sixth); A-2(a) in 70-7226 (Thirty-seventh); C-1 to Rule 24 Certificate in 70-7270 (Thirty-eighth); 4(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 in 1-8474 (Thirty-ninth); A-2(b) to Rule 24 Certificate in 70-7553 (Fortieth); A-2(d) to Rule 24 Certificate in 70-7553 (Forty-first); A-3(a) to Rule 24 Certificate in 70-7822 (Forty-second); A-3(b) to Rule 24 Certificate in 70-7822 (Forty-third); A-2(b) to Rule 24 Certificate in 70-7822 (Forty-fourth); A-3(c) to Rule 24 Certificate in 70-7822 (Forty-fifth); A-2(c) to Rule 24 Certificate dated April 7, 1993 in 70-7822 (Forty-sixth); A-3(d) to Rule 24 Certificate dated June 4, 1993 in 70-7822 (Forth-seventh); A-3(e) to Rule 24 Certificate dated December 21, 1993 in 70-7822 (Forty-eighth); A-3(f) to Rule 24 Certificate dated August 1, 1994 in 70-7822 (Forty-ninth); A-4(c) to Rule 24 Certificate dated September 28, 1994 in 70-7653 (Fiftieth); A-2(a) to Rule 24 Certificate dated April 4, 1996 in 70-8487 (Fifty-first); A-2(a) to Rule 24 Certificate dated April 3, 1998 in 70-9141 (Fifty-second); A-2(b) to Rule 24 Certificate dated April 9, 1999 in 70-9141 (Fifty-third); A-3(a) to Rule 24 Certificate dated July 6, 1999 in 70-9141 (Fifty-fourth); A-2(c) to Rule 24 Certificate dated June 2, 2000 in 70-9141 (Fifty-fifth); A-2(d) to Rule 24 Certificate dated April 4, 2002 in 70-9141 (Fifty-sixth); A-3(a) to Rule 24 Certificate dated March 30, 2004 in 70-10086 (Fifty-seventh); A-3(b) to Rule 24 Certificate dated October 15, 2004 in 70-10086 (Fifty-eighth); A-3(c) to Rule 24 Certificate dated October 26, 2004 in 70-10086 (Fifty-ninth); A-3(d) to Rule 24 Certificate dated May 18, 2005 in 70-10086 (Sixtieth); A-3(e) to Rule 24 Certificate dated August 25, 2005 in 70-10086 (Sixty-first); A-3(f) to Rule 24 Certificate dated October 31, 2005 in 70-10086 (Sixty-second); B-4(i) to Rule 24 Certificate dated January 10, 2006 (Sixty-third); and B-4(ii) to Rule 24 Certificate dated January 10, 2006 (Sixty-fourth)). |
(e) 2 -- |
Facility Lease No. 1, dated as of September 1, 1989, between First National Bank of Commerce, as Owner Trustee, and Entergy Louisiana (4(c)-1 in Registration No. 33-30660), as supplemented by Lease Supplement No. 1 dated as of July 1, 1997 (attached to Refunding Agreement No. 1, dated as of June 27, 1997, with such Refunding Agreement filed as Exhibit 2 to Current Report on Form 8-K, dated July 14, 1997 in 1-8474). |
(e) 3 -- |
Facility Lease No. 2, dated as of September 1, 1989, between First National Bank of Commerce, as Owner Trustee, and Entergy Louisiana (4(c)-2 in Registration No. 33-30660), as supplemented by Lease Supplemental No. 1 dated as of July 1, 1997 (attached to Refunding Agreement No. 2, dated as of June 27, 1997, with such Refunding Agreement filed as Exhibit 3 to Current Report on Form 8-K, dated July 14, 1997 in 1-8474). |
(e) 4 -- |
Facility Lease No. 3, dated as of September 1, 1989, between First National Bank of Commerce, as Owner Trustee, and Entergy Louisiana (4(c)-3 in Registration No. 33-30660), as supplemented by Lease Supplemental No. 1 dated as of July 1, 1997 (attached to Refunding Agreement No. 3, dated as of June 27, 1997, with such Refunding Agreement filed as Exhibit 4 to Current Report on Form 8-K, dated July 14, 1997 in 1-8474). |
Entergy Mississippi
(f) 1 -- |
Mortgage and Deed of Trust, dated as of February 1, 1988, as amended by twenty-five Supplemental Indentures (A-2(a)-2 to Rule 24 Certificate in 70-7461 (Mortgage); A-2(b)-2 in 70-7461 (First); A-5(b) to Rule 24 Certificate in 70-7419 (Second); A-4(b) to Rule 24 Certificate in 70-7554 (Third); A-1(b)-1 to Rule 24 Certificate in 70-7737 (Fourth); A-2(b) to Rule 24 Certificate dated November 24, 1992 in 70-7914 (Fifth); A-2(e) to Rule 24 Certificate dated January 22, 1993 in 70-7914 (Sixth); A-2(g) to Form U-1 in 70-7914 (Seventh); A-2(i) to Rule 24 Certificate dated November 10, 1993 in 70-7914 (Eighth); A-2(j) to Rule 24 Certificate dated July 22, 1994 in 70-7914 (Ninth); (A-2(l) to Rule 24 Certificate dated April 21, 1995 in 70-7914 (Tenth); A-2(a) to Rule 24 Certificate dated June 27, 1997 in 70-8719 (Eleventh); A-2(b) to Rule 24 Certificate dated April 16, 1998 in 70-8719 (Twelfth); A-2(c) to Rule 24 Certificate dated May 12, 1999 in 70-8719 (Thirteenth); A-3(a) to Rule 24 Certificate dated June 8, 1999 in 70-8719 (Fourteenth); A-2(d) to Rule 24 Certificate dated February 24, 2000 in 70-8719 (Fifteenth); A-2(a) to Rule 24 Certificate dated February 9, 2001 in 70-9757 (Sixteenth); A-2(b) to Rule 24 Certificate dated October 31, 2002 in 70-9757 (Seventeenth); A-2(c) to Rule 24 Certificate dated December 2, 2002 in 70-9757 (Eighteenth); A-2(d) to Rule 24 Certificate dated February 6, 2003 in 70-9757 (Nineteenth); A-2(e) to Rule 24 Certificate dated April 4, 2003 in 70-9757 (Twentieth); A-2(f) to Rule 24 Certificate dated June 6, 2003 in 70-9757 (Twenty-first); A-3(a) to Rule 24 Certificate dated April 8, 2004 in 70-10157 (Twenty-second); A-3(b) to Rule 24 Certificate dated April 29, 2004 in 70-10157 (Twenty-third); A-3(c) to Rule 24 Certificate dated October 4, 2004 in 70-10157 (Twenty-fourth); and A-3(d) to Rule 24 Certificate dated January 27, 2006 in 70-10157 (Twenty-fifth)). |
Entergy New Orleans
(g) 1 -- |
Mortgage and Deed of Trust, dated as of May 1, 1987, as amended by fourteen Supplemental Indentures (A-2(c) to Rule 24 Certificate in 70-7350 (Mortgage); A-5(b) to Rule 24 Certificate in 70-7350 (First); A-4(b) to Rule 24 Certificate in 70-7448 (Second); 4(f)4 to Form 10-K for the year ended December 31, 1992 in 0-5807 (Third); 4(a) to Form 10-Q for the quarter ended September 30, 1993 in 0-5807 (Fourth); 4(a) to Form 8-K dated April 26, 1995 in 0-5807 (Fifth); 4(a) to Form 8-K dated March 22, 1996 in 0-5807 (Sixth); 4(b) to Form 10-Q for the quarter ended June 30, 1998 in 0-5807 (Seventh); 4(d) to Form 10-Q for the quarter ended June 30, 2000 in 0-5807 (Eighth); C-5(a) to Form U5S for the year ended December 31, 2000 (Ninth); 4(b) to Form 10-Q for the quarter ended September 30, 2002 in 0-5807 (Tenth); 4(k) to Form 10-Q for the quarter ended June 30, 2003 in 0-5807 (Eleventh); 4(a) to Form 10-Q for the quarter ended September 30, 2004 in 0-5807 (Twelfth); 4(b) to Form 10-Q for the quarter ended September 30, 2004 in 0-5807 (Thirteenth); and 4(e) to Form 10-Q for the quarter ended June 30, 2005 in 0-5807 (Fourteenth)). |
(10) Material Contracts
Entergy Corporation
(a) 1 -- |
Agreement, dated April 23, 1982, among certain System companies, relating to System Planning and Development and Intra-System Transactions (10(a)1 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(a) 2 -- |
Middle South Utilities (now Entergy Corporation) System Agency Agreement, dated December 11, 1970 (5(a)2 in 2-41080). |
(a) 3 -- |
Amendment, dated February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(a) 4 -- |
Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(a) 5 -- |
Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)3 in 2-41080). |
(a) 6 -- |
Service Agreement with Entergy Services, dated as of April 1, 1963 (5(a)5 in 2-41080). |
(a) 7 -- |
Amendment, dated April 27, 1984, to Service Agreement with Entergy Services (10(a)7 to Form 10-K for the year ended December 31, 1984 in 1-3517). |
(a) 8 -- |
Amendment, dated January 1, 2000, to Service Agreement with Entergy Services (10(a)12 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
(a) 9 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(a)9 to Form 10-K for the year ended December 31, 2004 in 1-11299). |
(a) 10 -- |
Availability Agreement, dated June 21, 1974, among System Energy and certain other System companies (B to Rule 24 Certificate dated June 24, 1974 in 70-5399). |
(a) 11 -- |
First Amendment to Availability Agreement, dated as of June 30, 1977 (B to Rule 24 Certificate dated June 24, 1977 in 70-5399). |
(a) 12 -- |
Second Amendment to Availability Agreement, dated as of June 15, 1981 (E to Rule 24 Certificate dated July 1, 1981 in 70-6592). |
(a) 13 -- |
Third Amendment to Availability Agreement, dated as of June 28, 1984 (B-13(a) to Rule 24 Certificate dated July 6, 1984 in 70-6985). |
(a) 14 -- |
Fourth Amendment to Availability Agreement, dated as of June 1, 1989 (A to Rule 24 Certificate dated June 8, 1989 in 70-5399). |
(a) 15 -- |
Eighteenth Assignment of Availability Agreement, Consent and Agreement, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (C-2 to Rule 24 Certificate dated October 1, 1986 in 70-7272). |
(a) 16 -- |
Nineteenth Assignment of Availability Agreement, Consent and Agreement, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (C-3 to Rule 24 Certificate dated October 1, 1986 in 70-7272). |
(a) 17 -- |
Twenty-sixth Assignment of Availability Agreement, Consent and Agreement, dated as of October 1, 1992, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-2(c) to Rule 24 Certificate dated November 2, 1992 in 70-7946). |
(a) 18 -- |
Twenty-seventh Assignment of Availability Agreement, Consent and Agreement, dated as of April 1, 1993, with United States Trust Company of New York and Gerard F. Ganey as Trustees (B-2(d) to Rule 24 Certificate dated May 4, 1993 in 70-7946). |
(a) 19 -- |
Twenty-ninth Assignment of Availability Agreement, Consent and Agreement, dated as of April 1, 1994, with United States Trust Company of New York and Gerard F. Ganey as Trustees (B-2(f) to Rule 24 Certificate dated May 6, 1994 in 70-7946). |
(a) 20 -- |
Thirtieth Assignment of Availability Agreement, Consent and Agreement, dated as of August 1, 1996, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans, and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-2(a) to Rule 24 Certificate dated August 8, 1996 in 70-8511). |
(a) 21 -- |
Thirty-first Assignment of Availability Agreement, Consent and Agreement, dated as of August 1, 1996, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-2(b) to Rule 24 Certificate dated August 8, 1996 in 70-8511). |
(a) 22 -- |
Thirty-fourth Assignment of Availability Agreement, Consent and Agreement, dated as of September 1, 2002, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, The Bank of New York and Douglas J. MacInnes (B-2(a)(1) to Rule 24 Certificate dated October 4, 2001 in 70-9753). |
(a) 23 -- |
Amendment to the Thirty-fourth Assignment of Availability Agreement, Consent and Agreement, dated as of December 15, 2005 (B-5(i) to Rule 24 Certificate dated January 10, 2006 in 70-10324). |
(a) 24 -- |
Thirty-fifth Assignment of Availability Agreement, Consent and Agreement, dated as of December 22, 2003, among System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and Union Bank of California, N.A (10(a)25 to Form 10-K for the year ended December 31, 2003 in 1-11299). |
(a) 25 -- |
First Amendment to Thirty-fifth Assignment of Availability Agreement, Consent and Agreement, dated as of December 17, 2004 (10(a)24 to Form 10-K for the year ended December 31, 2004 in 1-11299). |
(a) 26 -- |
Capital Funds Agreement, dated June 21, 1974, between Entergy Corporation and System Energy (C to Rule 24 Certificate dated June 24, 1974 in 70-5399). |
(a) 27 -- |
First Amendment to Capital Funds Agreement, dated as of June 1, 1989 (B to Rule 24 Certificate dated June 8, 1989 in 70-5399). |
(a) 28 -- |
Eighteenth Supplementary Capital Funds Agreement and Assignment, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (D-2 to Rule 24 Certificate dated October 1, 1986 in 70-7272). |
(a) 29 -- |
Nineteenth Supplementary Capital Funds Agreement and Assignment, dated as of September 1, 1986, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (D-3 to Rule 24 Certificate dated October 1, 1986 in 70-7272). |
(a) 30 -- |
Twenty-sixth Supplementary Capital Funds Agreement and Assignment, dated as of October 1, 1992, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(c) to Rule 24 Certificate dated November 2, 1992 in 70-7946). |
(a) 31 -- |
Twenty-seventh Supplementary Capital Funds Agreement and Assignment, dated as of April 1, 1993, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(d) to Rule 24 Certificate dated May 4, 1993 in 70-7946). |
(a) 32 -- |
Twenty-ninth Supplementary Capital Funds Agreement and Assignment, dated as of April 1, 1994, with United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(f) to Rule 24 Certificate dated May 6, 1994 in 70-7946). |
(a) 33 -- |
Thirtieth Supplementary Capital Funds Agreement and Assignment, dated as of August 1, 1996, among Entergy Corporation, System Energy and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(a) to Rule 24 Certificate dated August 8, 1996 in 70-8511). |
(a) 34 -- |
Thirty-first Supplementary Capital Funds Agreement and Assignment, dated as of August 1, 1996, among Entergy Corporation, System Energy and United States Trust Company of New York and Gerard F. Ganey, as Trustees (B-3(b) to Rule 24 Certificate dated August 8, 1996 in 70-8511). |
(a) 35 -- |
Thirty-fourth Supplementary Capital Funds Agreement and Assignment, dated as of September 1, 2002, among Entergy Corporation, System Energy, The Bank of New York and Douglas J. MacInnes (B-3(a)(1) to Rule 24 Certificate dated October 4, 2002 in 70-9753). |
(a) 36 -- |
Thirty-fifth Supplementary Capital Funds Agreement and Assignment, dated as of December 22, 2003, among Entergy Corporation, System Energy, and Union Bank of California, N.A (10(a)38 to Form 10-K for the year ended December 31, 2003 in 1-11299). |
(a) 37 -- |
First Amendment to Supplementary Capital Funds Agreements and Assignments, dated as of June 1, 1989, by and between Entergy Corporation, System Energy, Deposit Guaranty National Bank, United States Trust Company of New York and Gerard F. Ganey (C to Rule 24 Certificate dated June 8, 1989 in 70-7026). |
(a) 38 -- |
First Amendment to Supplementary Capital Funds Agreements and Assignments, dated as of June 1, 1989, by and between Entergy Corporation, System Energy, United States Trust Company of New York and Gerard F. Ganey (C to Rule 24 Certificate dated June 8, 1989 in 70-7123). |
(a) 39 -- |
First Amendment to Supplementary Capital Funds Agreement and Assignment, dated as of June 1, 1989, by and between Entergy Corporation, System Energy and Chemical Bank (C to Rule 24 Certificate dated June 8, 1989 in 70-7561). |
(a) 40 -- |
Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). |
(a) 41 -- |
Joint Construction, Acquisition and Ownership Agreement, dated as of May 1, 1980, between System Energy and SMEPA (B-1(a) in 70-6337), as amended by Amendment No. 1, dated as of May 1, 1980 (B-1(c) in 70-6337) and Amendment No. 2, dated as of October 31, 1980 (1 to Rule 24 Certificate dated October 30, 1981 in 70-6337). |
(a) 42 -- |
Operating Agreement dated as of May 1, 1980, between System Energy and SMEPA (B(2)(a) in 70-6337). |
(a) 43 -- |
Assignment, Assumption and Further Agreement No. 1, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561). |
(a) 44 -- |
Assignment, Assumption and Further Agreement No. 2, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561). |
(a) 45 -- |
Substitute Power Agreement, dated as of May 1, 1980, among Entergy Mississippi, System Energy and SMEPA (B(3)(a) in 70-6337). |
(a) 46 -- |
Grand Gulf Unit No. 2 Supplementary Agreement, dated as of February 7, 1986, between System Energy and SMEPA (10(aaa) in 33-4033). |
(a) 47 -- |
Compromise and Settlement Agreement, dated June 4, 1982, between Texaco, Inc. and Entergy Louisiana (28(a) to Form 8-K dated June 4, 1982 in 1-3517). |
(a) 48 -- |
Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a)39 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(a) 49 -- |
First Amendment to Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). |
(a) 50 -- |
Revised Unit Power Sales Agreement (10(ss) in 33-4033). |
(a) 51 -- |
Middle South Utilities Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). |
(a) 52 -- |
First Amendment, dated January 1, 1990, to the Middle South Utilities Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). |
(a) 53 -- |
Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). |
(a) 54 -- |
Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(a) 55 -- |
Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
(a) 56 -- |
Guaranty Agreement between Entergy Corporation and Entergy Arkansas, dated as of September 20, 1990 (B-1(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). |
(a) 57 -- |
Guarantee Agreement between Entergy Corporation and Entergy Louisiana, dated as of September 20, 1990 (B-2(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). |
(a) 58 -- |
Guarantee Agreement between Entergy Corporation and System Energy, dated as of September 20, 1990 (B-3(a) to Rule 24 Certificate dated September 27, 1990 in 70- 7757). |
(a) 59 -- |
Loan Agreement between Entergy Operations and Entergy Corporation, dated as of September 20, 1990 (B-12(b) to Rule 24 Certificate dated June 15, 1990 in 70-7679). |
(a) 60 -- |
Loan Agreement between Entergy Power and Entergy Corporation, dated as of August 28, 1990 (A-4(b) to Rule 24 Certificate dated September 6, 1990 in 70-7684). |
(a) 61 -- |
Loan Agreement between Entergy Corporation and Entergy Systems and Service, Inc., dated as of December 29, 1992 (A-4(b) to Rule 24 Certificate in 70-7947). |
+(a) 62 -- |
Executive Financial Counseling Program of Entergy Corporation and Subsidiaries (10(a)64 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 63 -- |
Amended and Restated Executive Annual Incentive Plan of Entergy Corporation and Subsidiaries, effective January 1, 2003 (10(b) to Form 10-Q for the quarter ended March 31, 2003 in 1-11299). |
+(a) 64 -- |
Equity Ownership Plan of Entergy Corporation and Subsidiaries (A-4(a) to Rule 24 Certificate dated May 24, 1991 in 70-7831). |
+(a) 65 -- |
Amendment No. 1 to the Equity Ownership Plan of Entergy Corporation and Subsidiaries (10(a)71 to Form 10-K for the year ended December 31, 1992 in 1-3517). |
+(a) 66 -- |
Amended and Restated 1998 Equity Ownership Plan of Entergy Corporation and Subsidiaries (10(a) to Form 10-Q for the quarter ended March 31, 2003 in 1-11299). |
+(a) 67 -- |
Supplemental Retirement Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000 (10(a)70 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 68 -- |
Amendment, effective December 28, 2001, to the Supplemental Retirement Plan of Entergy Corporation and Subsidiaries (10(a)71 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 69 -- |
Defined Contribution Restoration Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000 (10(a)72 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 70 -- |
Amendment, effective December 28, 2001, to the Defined Contribution Restoration Plan of Entergy Corporation and Subsidiaries (10(a)73 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 71 -- |
Executive Disability Plan of Entergy Corporation and Subsidiaries (10(a)74 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 72 -- |
Amended and Restated Executive Deferred Compensation Plan of Entergy Corporation and Subsidiaries, dated June 10, 2003 (10(d) to Form 10-Q for the quarter ended June 30, 2003 in 1-11299). |
+(a) 73 -- |
Equity Awards Plan of Entergy Corporation and Subsidiaries, effective as of August 31, 2000 (10(a)77 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 74 -- |
Amendment, effective December 7, 2001, to the Equity Awards Plan of Entergy Corporation and Subsidiaries (10(a)78 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 75 -- |
Amendment, effective December 10, 2001, to the Equity Awards Plan of Entergy Corporation and Subsidiaries (10(b) to Form 10-Q for the quarter ended March 31, 2002 in 1-11299). |
+(a) 76 -- |
Restatement of System Executive Continuity Plan of Entergy Corporation and Subsidiaries, effective as of March 8, 2004 (10(d) to Form 10-Q for the quarter ended March 31, 2004 in 1-11299). |
+(a) 77-- |
First Amendment of the System Executive Continuity Plan of Entergy Corporation and Subsidiaries, effective December 29, 2004 (10(a)76 to Form 10-K for the year ended December 31, 2004 in 1-11299). |
+(a) 78 -- |
Second Amendment of the System Executive Continuity Plan of Entergy Corporation and Subsidiaries, effective April 15, 2005 (10(a) to Form 10-Q for the quarter ended March 31, 2005 in 1-11299). |
+(a) 79 -- |
System Executive Continuity Plan II of Entergy Corporation and Subsidiaries, effective March 8, 2004 (10(e) to Form 10-Q for the quarter ended March 31, 2004 in 1-11299). |
+(a) 80 -- |
First Amendment of the System Executive Continuity Plan II of Entergy Corporation and Subsidiaries, effective December 29, 2004 (10(a)78 to Form 10-K for the year ended December 31, 2004 in 1-11299). |
+(a) 81 -- |
Post-Retirement Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000 (10(a)80 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 82 -- |
Amendment, effective December 28, 2001, to the Post-Retirement Plan of Entergy Corporation and Subsidiaries (10(a)81 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 83 -- |
Pension Equalization Plan of Entergy Corporation and Subsidiaries, as amended effective January 1, 2000 (10(a)82 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 84 -- |
Amendment, effective December 28, 2001, to the Pension Equalization Plan of Entergy Corporation and Subsidiaries (10(a)83 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 85 -- |
Service Recognition Program for Non-Employee Outside Directors of Entergy Corporation and Subsidiaries, effective January 1, 2000 (10(a)84 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 86 -- |
Executive Income Security Plan of Gulf States Utilities Company, as amended effective March 1, 1991 (10(a)86 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 87 -- |
System Executive Retirement Plan of Entergy Corporation and Subsidiaries, effective January 1, 2000 (10(a)87 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 88 -- |
Amendment, effective December 28, 2001, to the System Executive Retirement Plan of Entergy Corporation and Subsidiaries (10(a)88 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 89 -- |
Retention Agreement effective October 27, 2000 between J. Wayne Leonard and Entergy Corporation (10(a)81 to Form 10-K for the year ended December 31, 2000 in 1-11299). |
+(a) 90 -- |
Amendment to Retention Agreement effective March 8, 2004 between J. Wayne Leonard and Entergy Corporation (10(c) to Form 10-Q for the quarter ended March 31, 2004 in 1-11299). |
*+(a) 91 -- |
Amendment to Retention Agreement effective December 30, 2005 between J. Wayne Leonard and Entergy Corporation. |
+(a) 92 -- |
Retention Agreement effective January 22, 2001 between Richard J. Smith and Entergy Services, Inc (10(a)87 to Form 10-K for the year ended December 31, 2000 in 1-11299). |
+(a) 93 -- |
Employment Agreement effective August 7, 2001 between Curt L. Hebert and Entergy Corporation (10(a)97 to Form 10-K for the year ended December 31, 2001 in 1-11299). |
+(a) 94 -- |
Agreement of Limited Partnership of Entergy-Koch, LP among EKLP, LLC, EK Holding I, LLC, EK Holding II, LLC and Koch Energy, Inc. dated January 31, 2001 (10(a)94 to Form 10-K/A for the year ended December 31, 2000 in 1-11299). |
+(a) 95 -- |
Employment Agreement effective April 15, 2003 between Robert D. Sloan and Entergy Services (10(c) to Form 10-Q for the quarter ended June 30, 2003 in 1-11299). |
+(a) 96 -- |
Employment Agreement effective November 24, 2003 between Mark T. Savoff and Entergy Services (10(a)99 to Form 10-K for the year ended December 31, 2003 in 1-11299). |
+(a) 97 -- |
Employment Agreement effective February 9, 1999 between Leo P. Denault and Entergy Services (10(a) to Form 10-Q for the quarter ended March 31, 2004 in 1-11299). |
+(a) 98 -- |
Amendment to Employment Agreement effective March 5, 2004 between Leo P. Denault and Entergy Corporation (10(b) to Form 10-Q for the quarter ended March 31, 2004 in 1-11299). |
+(a) 99 -- |
Shareholder Approval of Future Severance Agreements Policy, effective March 8, 2004 (10(f) to Form 10-Q for the quarter ended March 31, 2004 in 1-11299). |
(a) 100 -- |
Consulting Agreement effective May 4, 2004 between Hintz & Associates, LLC and Entergy Services, Inc. (10(d) to Form 10-Q for the quarter ended June 30, 2004 in 1-11299). |
+(a) 101 -- |
Form of Stock Option Grant Agreement Letter, as of December 31, 2004 (99.1 to Form 8-K dated January 26, 2005 in 1-11299). |
+(a) 102 -- |
Form of Long Term Incentive Plan Performance Unit Grand Letter, as of December 31, 2004 (99.2 to Form 8-K dated January 26, 2005 in 1-11299). |
+(a) 103 -- |
Summary of Executive Officer and Director Compensation (10(a)100 to Form 10-K for the year ended December 31, 2004 in 1-11299). |
+(a) 104 -- |
Terms of Restricted Stock Grants for Outside Directors (10(a)101 to Form 10-K for the year ended December 31, 2004 in 1-11299). |
+(a) 105 -- |
Summary of Outside Director Compensation and Benefits for Entergy Corporation, as of July 29, 2005 (10(a) to Form 10-Q for the quarter ended September 30, 2005 in 1-11299). |
System Energy
(b) 1 through (b) 16 -- See 10(a)10 through 10(a)25 above. |
|
(b) 17 through (b) 30 -- See 10(a)26 through 10(a)39 above. |
|
(b) 31 -- |
Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). |
(b) 32 -- |
Joint Construction, Acquisition and Ownership Agreement, dated as of May 1, 1980, between System Energy and SMEPA (B-1(a) in 70-6337), as amended by Amendment No. 1, dated as of May 1, 1980 (B-1(c) in 70-6337) and Amendment No. 2, dated as of October 31, 1980 (1 to Rule 24 Certificate dated October 30, 1981 in 70-6337). |
(b) 33 -- |
Operating Agreement, dated as of May 1, 1980, between System Energy and SMEPA (B(2)(a) in 70-6337). |
(b) 34 -- |
Amended and Restated Installment Sale Agreement, dated as of February 15, 1996, between System Energy and Claiborne County, Mississippi (B-6(a) to Rule 24 Certificate dated March 4, 1996 in 70-8511). |
(b) 35 -- |
Loan Agreement, dated as of October 15, 1998, between System Energy and Mississippi Business Finance Corporation (B-6(b) to Rule 24 Certificate dated November 12, 1998 in 70-8511). |
(b) 36 -- |
Loan Agreement, dated as of May 15, 1999, between System Energy and Mississippi Business Finance Corporation (B-6(c) to Rule 24 Certificate dated June 8, 1999 in 70-8511). |
(b) 37 -- |
Facility Lease No. 1, dated as of December 1, 1988, between Meridian Trust Company and Stephen M. Carta (Stephen J. Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (1) to Rule 24 Certificate dated April 21, 1989 in 70-7561), Lease Supplement No. 2 dated as of January 1, 1994 (B-3(d) to Rule 24 Certificate dated January 31, 1994 in 70-8215), and Lease Supplement No. 3 dated as of May 1, 2004 (B-3(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182). |
(b) 38 -- |
Facility Lease No. 2, dated as of December 1, 1988 between Meridian Trust Company and Stephen M. Carta (Stephen J. Kaba, successor), as Owner Trustees, and System Energy (B-2(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561), as supplemented by Lease Supplement No. 1 dated as of April 1, 1989 (B-22(b) (2) to Rule 24 Certificate dated April 21, 1989 in 70-7561), Lease Supplement No. 2 dated as of January 1, 1994 (B-4(d) Rule 24 Certificate dated January 31, 1994 in 70-8215), and Lease Supplement No. 3 dated as of May 1, 2004 (B-4(d) to Rule 24 Certificate dated June 4, 2004 in 70-10182). |
(b) 39 -- |
Assignment, Assumption and Further Agreement No. 1, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(1) to Rule 24 Certificate dated January 9, 1989 in 70-7561). |
(b) 40 -- |
Assignment, Assumption and Further Agreement No. 2, dated as of December 1, 1988, among System Energy, Meridian Trust Company and Stephen M. Carta, and SMEPA (B-7(c)(2) to Rule 24 Certificate dated January 9, 1989 in 70-7561). |
(b) 41 -- |
Collateral Trust Indenture, dated as of May 1, 2004, among GG1C Funding Corporation, System Energy, and Deutsche Bank Trust Company Americas, as Trustee (A-3(a) to Rule 24 Certificate dated June 4, 2004 in 70-10182), as supplemented by Supplemental Indenture No. 1 dated May 1, 2004, (A-4(a) to Rule 24 Certificate dated June 4, 2004 in 70-10182). |
(b) 42 -- |
Substitute Power Agreement, dated as of May 1, 1980, among Entergy Mississippi, System Energy and SMEPA (B(3)(a) in 70-6337). |
(b) 43 -- |
Grand Gulf Unit No. 2 Supplementary Agreement, dated as of February 7, 1986, between System Energy and SMEPA (10(aaa) in 33-4033). |
(b) 44 -- |
Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a)39 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(b) 45 -- |
First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). |
(b) 46 -- |
Revised Unit Power Sales Agreement (10(ss) in 33-4033). |
(b) 47 -- |
Fuel Lease, dated as of February 24, 1989, between River Fuel Funding Company #3, Inc. and System Energy (B-1(b) to Rule 24 Certificate dated March 3, 1989 in 70-7604). |
(b) 48 -- |
System Energy's Consent, dated January 31, 1995, pursuant to Fuel Lease, dated as of February 24, 1989, between River Fuel Funding Company #3, Inc. and System Energy (B-1(c) to Rule 24 Certificate dated February 13, 1995 in 70-7604). |
(b) 49 -- |
Sales Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (D to Rule 24 Certificate dated June 26, 1974 in 70-5399). |
(b) 50 -- |
Service Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (E to Rule 24 Certificate dated June 26, 1974 in 70-5399). |
(b) 51 -- |
Partial Termination Agreement, dated as of December 1, 1986, between System Energy and Entergy Mississippi (A-2 to Rule 24 Certificate dated January 8, 1987 in 70-5399). |
(b) 52 -- |
Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). |
(b) 53 -- |
First Amendment, dated January 1, 1990 to the Middle South Utilities Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). |
(b) 54 -- |
Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). |
(b) 55 -- |
Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(b) 56 -- |
Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
(b) 57 -- |
Service Agreement with Entergy Services, dated as of July 16, 1974, as amended (10(b)43 to Form 10-K for the year ended December 31, 1988 in 1-9067). |
(b) 58 -- |
Amendment, dated January 1, 2004, to Service Agreement with Entergy Services (10(b)57 to Form 10-K for the year ended December 31, 2004 in 1-9067). |
(b) 59 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(b)58 to Form 10-K for the year ended December 31, 2004 in 1-9067). |
(b) 60 -- |
Operating Agreement between Entergy Operations and System Energy, dated as of June 6, 1990 (B-3(b) to Rule 24 Certificate dated June 15, 1990 in 70-7679). |
(b) 61 -- |
Guarantee Agreement between Entergy Corporation and System Energy, dated as of September 20, 1990 (B-3(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). |
(b) 62 -- |
Letter of Credit and Reimbursement Agreement, dated as of December 22, 2003, among System Energy Resources, Inc., Union Bank of California, N.A., as administrating bank and funding bank, Keybank National Association, as syndication agent, Banc One Capital Markets, Inc., as documentation agent, and the Banks named therein, as Participating Banks (10(b)63 to Form 10-K for the year ended December 31, 2003 in 1-9067). |
(b) 63 -- |
Amendment to Letter of Credit and Reimbursement Agreement, dated as of December 22, 2003 (10(b)62 to Form 10-K for the year ended December 31, 2004 in 1-9067). |
(b) 64 -- |
First Amendment and Consent, dated as of May 3, 2004, to Letter of Credit and Reimbursement Agreement (10(b)63 to Form 10-K for the year ended December 31, 2004 in 1-9067). |
(b) 65 -- |
Second Amendment and Consent, dated as of December 17, 2004, to Letter of Credit and Reimbursement Agreement (99 to Form 8-K dated December 22, 2004 in 1-9067). |
Entergy Arkansas
(c) 1 -- |
Agreement, dated April 23, 1982, among Entergy Arkansas and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a) 1 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(c) 2 -- |
Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)2 in 2-41080). |
(c) 3 -- |
Amendment, dated February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(c) 4 -- |
Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(c) 5 -- |
Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)3 in 2-41080). |
(c) 6 -- |
Service Agreement with Entergy Services, dated as of April 1, 1963 (5(a)5 in 2-41080). |
(c) 7 -- |
Amendment, dated April 27, 1984, to Service Agreement, with Entergy Services (10(a)7 to Form 10-K for the year ended December 31, 1984 in 1-3517). |
(c) 8 -- |
Amendment, dated January 1, 2000, to Service Agreement with Entergy Services (10(a)12 to Form 10-K for the year ended December 31, 2002 in 1-10764). |
(c) 9 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(c)9 to Form 10-K for the year ended December 31, 2004 in 1-10764). |
(c) 10 through (c) 25 -- See 10(a)10 through 10(a)25 above. |
|
(c) 26 -- |
Agreement, dated August 20, 1954, between Entergy Arkansas and the United States of America (SPA)(13(h) in 2-11467). |
(c) 27 -- |
Amendment, dated April 19, 1955, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)2 in 2-41080). |
(c) 28 -- |
Amendment, dated January 3, 1964, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)3 in 2-41080). |
(c) 29 -- |
Amendment, dated September 5, 1968, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)4 in 2-41080). |
(c) 30 -- |
Amendment, dated November 19, 1970, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)5 in 2-41080). |
(c) 31 -- |
Amendment, dated July 18, 1961, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)6 in 2-41080). |
(c) 32 -- |
Amendment, dated December 27, 1961, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)7 in 2-41080). |
(c) 33 -- |
Amendment, dated January 25, 1968, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)8 in 2-41080). |
(c) 34 -- |
Amendment, dated October 14, 1971, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)9 in 2-43175). |
(c) 35 -- |
Amendment, dated January 10, 1977, to the United States of America (SPA) Contract, dated August 20, 1954 (5(d)10 in 2-60233). |
(c) 36 -- |
Agreement, dated May 14, 1971, between Entergy Arkansas and the United States of America (SPA) (5(e) in 2-41080). |
(c) 37 -- |
Amendment, dated January 10, 1977, to the United States of America (SPA) Contract, dated May 14, 1971 (5(e)1 in 2-60233). |
(c) 38 -- |
Contract, dated May 28, 1943, Amendment to Contract, dated July 21, 1949, and Supplement to Amendment to Contract, dated December 30, 1949, between Entergy Arkansas and McKamie Gas Cleaning Company; Agreements, dated as of September 30, 1965, between Entergy Arkansas and former stockholders of McKamie Gas Cleaning Company; and Letter Agreement, dated June 22, 1966, by Humble Oil & Refining Company accepted by Entergy Arkansas on June 24, 1966 (5(k)7 in 2-41080). |
(c) 39 -- |
Fuel Lease, dated as of December 22, 1988, between River Fuel Trust #1 and Entergy Arkansas (B-1(b) to Rule 24 Certificate in 70-7571). |
(c) 40 -- |
White Bluff Operating Agreement, dated June 27, 1977, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas (B-2(a) to Rule 24 Certificate dated June 30, 1977 in 70-6009). |
(c) 41 -- |
White Bluff Ownership Agreement, dated June 27, 1977, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas (B-1(a) to Rule 24 Certificate dated June 30, 1977 in 70-6009). |
(c) 42 -- |
Agreement, dated June 29, 1979, between Entergy Arkansas and City of Conway, Arkansas (5(r)3 in 2-66235). |
(c) 43 -- |
Transmission Agreement, dated August 2, 1977, between Entergy Arkansas and City Water and Light Plant of the City of Jonesboro, Arkansas (5(r)3 in 2-60233). |
(c) 44 -- |
Power Coordination, Interchange and Transmission Service Agreement, dated as of June 27, 1977, between Arkansas Electric Cooperative Corporation and Entergy Arkansas (5(r)4 in 2-60233). |
(c) 45 -- |
Independence Steam Electric Station Operating Agreement, dated July 31, 1979, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas and City of Conway, Arkansas (5(r)6 in 2-66235). |
(c) 46 -- |
Amendment, dated December 4, 1984, to the Independence Steam Electric Station Operating Agreement (10(c)51 to Form 10-K for the year ended December 31, 1984 in 1-10764). |
(c) 47 -- |
Independence Steam Electric Station Ownership Agreement, dated July 31, 1979, among Entergy Arkansas and Arkansas Electric Cooperative Corporation and City Water and Light Plant of the City of Jonesboro, Arkansas and City of Conway, Arkansas (5(r)7 in 2-66235). |
(c) 48 -- |
Amendment, dated December 28, 1979, to the Independence Steam Electric Station Ownership Agreement (5(r)7(a) in 2-66235). |
(c) 49 -- |
Amendment, dated December 4, 1984, to the Independence Steam Electric Station Ownership Agreement (10(c)54 to Form 10-K for the year ended December 31, 1984 in 1-10764). |
(c) 50 -- |
Owner's Agreement, dated November 28, 1984, among Entergy Arkansas, Entergy Mississippi, other co-owners of the Independence Station (10(c)55 to Form 10-K for the year ended December 31, 1984 in 1-10764). |
(c) 51 -- |
Consent, Agreement and Assumption, dated December 4, 1984, among Entergy Arkansas, Entergy Mississippi, other co-owners of the Independence Station and United States Trust Company of New York, as Trustee (10(c)56 to Form 10-K for the year ended December 31, 1984 in 1-10764). |
(c) 52 -- |
Power Coordination, Interchange and Transmission Service Agreement, dated as of July 31, 1979, between Entergy Arkansas and City Water and Light Plant of the City of Jonesboro, Arkansas (5(r)8 in 2-66235). |
(c) 53 -- |
Power Coordination, Interchange and Transmission Agreement, dated as of June 29, 1979, between City of Conway, Arkansas and Entergy Arkansas (5(r)9 in 2-66235). |
(c) 54 -- |
Agreement, dated June 21, 1979, between Entergy Arkansas and Reeves E. Ritchie (10(b)90 to Form 10-K for the year ended December 31, 1980 in 1-10764). |
(c) 55 -- |
Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). |
(c) 56 -- |
Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (10(a)39 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(c) 57 -- |
First Amendment to Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). |
(c) 58 -- |
Revised Unit Power Sales Agreement (10(ss) in 33-4033). |
(c) 59 -- |
Contract For Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste, dated June 30, 1983, among the DOE, System Fuels and Entergy Arkansas (10(b)57 to Form 10-K for the year ended December 31, 1983 in 1-10764). |
(c) 60 -- |
Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). |
(c) 61 -- |
First Amendment, dated January 1, 1990, to the Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). |
(c) 62 -- |
Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). |
(c) 63 -- |
Third Amendment dated January 1, 1994, to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(c) 64 -- |
Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
(c) 65 -- |
Assignment of Coal Supply Agreement, dated December 1, 1987, between System Fuels and Entergy Arkansas (B to Rule 24 letter filing dated November 10, 1987 in 70-5964). |
(c) 66 -- |
Coal Supply Agreement, dated December 22, 1976, between System Fuels and Antelope Coal Company (B-1 in 70-5964), as amended by First Amendment (A to Rule 24 Certificate in 70-5964); Second Amendment (A to Rule 24 letter filing dated December 16, 1983 in 70-5964); and Third Amendment (A to Rule 24 letter filing dated November 10, 1987 in 70-5964). |
(c) 67 -- |
Operating Agreement between Entergy Operations and Entergy Arkansas, dated as of June 6, 1990 (B-1(b) to Rule 24 Certificate dated June 15, 1990 in 70-7679). |
(c) 68 -- |
Guaranty Agreement between Entergy Corporation and Entergy Arkansas, dated as of September 20, 1990 (B-1(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). |
(c) 69 -- |
Agreement for Purchase and Sale of Independence Unit 2 between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-3(c) to Rule 24 Certificate dated September 6, 1990 in 70-7684). |
(c) 70 -- |
Agreement for Purchase and Sale of Ritchie Unit 2 between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-4(d) to Rule 24 Certificate dated September 6, 1990 in 70-7684). |
(c) 71 -- |
Ritchie Steam Electric Station Unit No. 2 Operating Agreement between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-5(a) to Rule 24 Certificate dated September 6, 1990 in 70-7684). |
(c) 72 -- |
Ritchie Steam Electric Station Unit No. 2 Ownership Agreement between Entergy Arkansas and Entergy Power, dated as of August 28, 1990 (B-6(a) to Rule 24 Certificate dated September 6, 1990 in 70-7684). |
(c) 73 -- |
Power Coordination, Interchange and Transmission Service Agreement between Entergy Power and Entergy Arkansas, dated as of August 28, 1990 (10(c)71 to Form 10-K for the year ended December 31, 1990 in 1-10764). |
(c) 74 -- |
Loan Agreement dated June 15, 1993, between Entergy Arkansas and Independence Country, Arkansas (B-1(a) to Rule 24 Certificate dated July 9, 1993 in 70-8171). |
(c) 75 -- |
Loan Agreement dated June 15, 1994, between Entergy Arkansas and Jefferson County, Arkansas (B-1(a) to Rule 24 Certificate dated June 30, 1994 in 70-8405). |
(c) 76 -- |
Loan Agreement dated June 15, 1994, between Entergy Arkansas and Pope County, Arkansas (B-1(b) to Rule 24 Certificate in 70-8405). |
(c) 77 -- |
Loan Agreement dated November 15, 1995, between Entergy Arkansas and Pope County, Arkansas (10(c)96 to Form 10-K for the year ended December 31, 1995 in 1-10764). |
(c) 78 -- |
Loan Agreement dated December 1, 1997, between Entergy Arkansas and Jefferson County, Arkansas (10(c)100 to Form 10-K for the year ended December 31, 1997 in 1-10764). |
(c) 79 -- |
Refunding Agreement, dated December 1, 2001, between Entergy Arkansas and Pope Country, Arkansas (10(c)81 to Form 10-K for the year ended December 31, 2001 in 1-10764). |
Entergy Gulf States
(d) 1 -- |
Guaranty Agreement, dated August 1, 1992, between Entergy Gulf States and Hibernia National Bank, relating to Pollution Control Revenue Refunding Bonds of the Industrial Development Board of the Parish of Calcasieu, Inc. (Louisiana) (10-1 to Form 10-K for the year ended December 31, 1992 in 1-27031). |
(d) 2 -- |
Guaranty Agreement, dated January 1, 1993, between Entergy Gulf States and Hancock Bank of Louisiana, relating to Pollution Control Revenue Refunding Bonds of the Parish of Pointe Coupee (Louisiana) (10-2 to Form 10-K for the year ended December 31, 1992 in 1-27031). |
(d) 3 -- |
Deposit Agreement, dated as of December 1, 1983 between Entergy Gulf States, Morgan Guaranty Trust Co. as Depositary and the Holders of Depository Receipts, relating to the Issue of 900,000 Depositary Preferred Shares, each representing 1/2 share of Adjustable Rate Cumulative Preferred Stock, Series E-$100 Par Value (4-17 to Form 10-K for the year ended December 31, 1983 in 1-27031). |
(d) 4 -- |
Agreement effective February 1, 1964, between Sabine River Authority, State of Louisiana, and Sabine River Authority of Texas, and Entergy Gulf States, Central Louisiana Electric Company, Inc., and Louisiana Power & Light Company, as supplemented (B to Form 8-K dated May 6, 1964, A to Form 8-K dated October 5, 1967, A to Form 8-K dated May 5, 1969, and A to Form 8-K dated December 1, 1969 in 1-27031). |
(d) 5 -- |
Joint Ownership Participation and Operating Agreement regarding River Bend Unit 1 Nuclear Plant, dated August 20, 1979, between Entergy Gulf States, Cajun, and SRG&T; Power Interconnection Agreement with Cajun, dated June 26, 1978, and approved by the REA on August 16, 1979, between Entergy Gulf States and Cajun; and Letter Agreement regarding CEPCO buybacks, dated August 28, 1979, between Entergy Gulf States and Cajun (2, 3, and 4, respectively, to Form 8-K dated September 7, 1979 in 1-27031). |
(d) 6 -- |
Ground Lease, dated August 15, 1980, between Statmont Associates Limited Partnership (Statmont) and Entergy Gulf States, as amended (3 to Form 8-K dated August 19, 1980 and A-3-b to Form 10-Q for the quarter ended September 30, 1983 in 1-27031). |
(d) 7 -- |
Lease and Sublease Agreement, dated August 15, 1980, between Statmont and Entergy Gulf States, as amended (4 to Form 8-K dated August 19, 1980 and A-3-c to Form 10-Q for the quarter ended September 30, 1983 in 1-27031). |
(d) 8 -- |
Lease Agreement, dated September 18, 1980, between BLC Corporation and Entergy Gulf States (1 to Form 8-K dated October 6, 1980 in 1-27031). |
(d) 9 -- |
Joint Ownership Participation and Operating Agreement for Big Cajun, between Entergy Gulf States, Cajun Electric Power Cooperative, Inc., and Sam Rayburn G&T, Inc, dated November 14, 1980 (6 to Form 8-K dated January 29, 1981 in 1-27031); Amendment No. 1, dated December 12, 1980 (7 to Form 8-K dated January 29, 1981 in 1-27031); Amendment No. 2, dated December 29, 1980 (8 to Form 8-K dated January 29, 1981 in 1-27031). |
(d) 10 -- |
Agreement of Joint Ownership Participation between SRMPA, SRG&T and Entergy Gulf States, dated June 6, 1980, for Nelson Station, Coal Unit #6, as amended (8 to Form 8-K dated June 11, 1980, A-2-b to Form 10-Q for the quarter ended June 30, 1982; and 10-1 to Form 8-K dated February 19, 1988 in 1-27031). |
(d) 11 -- |
Agreements between Southern Company and Entergy Gulf States, dated February 25, 1982, which cover the construction of a 140-mile transmission line to connect the two systems, purchase of power and use of transmission facilities (10-31 to Form 10-K for the year ended December 31, 1981 in 1-27031). |
(d) 12 -- |
Transmission Facilities Agreement between Entergy Gulf States and Mississippi Power Company, dated February 28, 1982, and Amendment, dated May 12, 1982 (A-2-c to Form 10-Q for the quarter ended March 31, 1982 in 1-27031) and Amendment, dated December 6, 1983 (10-43 to Form 10-K for the year ended December 31, 1983 in 1-27031). |
(d) 13 -- |
First Amended Power Sales Agreement, dated December 1, 1985 between Sabine River Authority, State of Louisiana, and Sabine River Authority, State of Texas, and Entergy Gulf States, Central Louisiana Electric Co., Inc., and Louisiana Power and Light Company (10-72 to Form 10-K for the year ended December 31, 1985 in 1-27031). |
+(d) 14 -- |
Deferred Compensation Plan for Directors of Entergy Gulf States and Varibus Corporation, as amended January 8, 1987, and effective January 1, 1987 (10-77 to Form 10-K for the year ended December 31, 1986 in 1-27031). Amendment dated December 4, 1991 (10-3 to Amendment No. 8 in Registration No. 2-76551). |
+(d) 15 -- |
Trust Agreement for Deferred Payments to be made by Entergy Gulf States pursuant to the Executive Income Security Plan, by and between Entergy Gulf States and Bankers Trust Company, effective November 1, 1986 (10-78 to Form 10-K for the year ended December 31, 1986 in 1-27031). |
+(d) 16 -- |
Trust Agreement for Deferred Installments under Entergy Gulf States' Management Incentive Compensation Plan and Administrative Guidelines by and between Entergy Gulf States and Bankers Trust Company, effective June 1, 1986 (10-79 to Form 10-K for the year ended December 31, 1986 in 1-27031). |
+(d) 17 -- |
Nonqualified Deferred Compensation Plan for Officers, Nonemployee Directors and Designated Key Employees, effective December 1, 1985, as amended, continued and completely restated effective as of March 1, 1991 (10-3 to Amendment No. 8 in Registration No. 2-76551). |
+(d) 18 -- |
Trust Agreement for Entergy Gulf States' Nonqualified Directors and Designated Key Employees by and between Entergy Gulf States and First City Bank, Texas-Beaumont, N.A. (now Texas Commerce Bank), effective July 1, 1991 (10-4 to Form 10-K for the year ended December 31, 1992 in 1-27031). |
(d) 19 -- |
Lease Agreement, dated as of June 29, 1987, among GSG&T, Inc., and Entergy Gulf States related to the leaseback of the Lewis Creek generating station (10-83 to Form 10-K for the year ended December 31, 1988 in 1-27031). |
(d) 20 -- |
Nuclear Fuel Lease Agreement between Entergy Gulf States and River Bend Fuel Services, Inc. to lease the fuel for River Bend Unit 1, dated February 7, 1989 (10-64 to Form 10-K for the year ended December 31, 1988 in 1-27031). |
(d) 21 -- |
Trust and Investment Management Agreement between Entergy Gulf States and Morgan Guaranty and Trust Company of New York (the "Decommissioning Trust Agreement") with respect to decommissioning funds authorized to be collected by Entergy Gulf States, dated March 15, 1989 (10-66 to Form 10-K for the year ended December 31, 1988 in 1-27031). |
(d) 22 -- |
Amendment No. 2 dated November 1, 1995 between Entergy Gulf States and Mellon Bank to Decommissioning Trust Agreement (10(d)31 to Form 10-K for the year ended December 31, 1995 in 1-27031). |
(d) 23 -- |
Amendment No. 3 dated March 5, 1998 between Entergy Gulf States and Mellon Bank to Decommissioning Trust Agreement (10(d)23 to Form 10-K for the year ended December 31, 2004 in 1-27031). |
(d) 24 -- |
Amendment No. 4 dated December 17, 2003 between Entergy Gulf States and Mellon Bank to Decommissioning Trust Agreement (10(d)24 to Form 10-K for the year ended December 31, 2004 in 1-27031). |
(d) 25 -- |
Partnership Agreement by and among Conoco Inc., and Entergy Gulf States, CITGO Petroleum Corporation and Vista Chemical Company, dated April 28, 1988 (10-67 to Form 10-K for the year ended December 31, 1988 in 1-27031). |
+(d) 26 -- |
Gulf States Utilities Company Executive Continuity Plan, dated January 18, 1991 (10-6 to Form 10-K for the year ended December 31, 1990 in 1-27031). |
+(d) 27 -- |
Trust Agreement for Entergy Gulf States' Executive Continuity Plan, by and between Entergy Gulf States and First City Bank, Texas-Beaumont, N.A. (now Texas Commerce Bank), effective May 20, 1991 (10-5 to Form 10-K for the year ended December 31, 1992 in 1-27031). |
+(d) 28 -- |
Gulf States Utilities Board of Directors' Retirement Plan, dated February 15, 1991 (10-8 to Form 10-K for the year ended December 31, 1990 in 1-27031). |
(d) 29 -- |
Operating Agreement between Entergy Operations and Entergy Gulf States, dated as of December 31, 1993 (B-2(f) to Rule 24 Certificate in 70-8059). |
(d) 30 -- |
Guarantee Agreement between Entergy Corporation and Entergy Gulf States, dated as of December 31, 1993 (B-5(a) to Rule 24 Certificate in 70-8059). |
(d) 31 -- |
Service Agreement with Entergy Services, dated as of December 31, 1993 (B-6(c) to Rule 24 Certificate in 70-8059). |
(d) 32 -- |
Amendment, dated January 1, 2000, to Service Agreement with Entergy Services (10(d)31 to Form 10-K for the year ended December 31, 2002 in 1-27031). |
(d) 33 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(d)33 to Form 10-K for the year ended December 31, 2004 in 1-27031). |
(d) 34 -- |
Third Amendment, dated January 1, 1994, to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(d) 35 -- |
Fourth Amendment, dated April 1, 1997, to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
(d) 36 -- |
Refunding Agreement dated as of May 1, 1998 between Entergy Gulf States and Parish of Iberville, State of Louisiana (B-3(a) to Rule 24 Certificate dated May 29, 1998 in 70-8721). |
(d) 37 -- |
Refunding Agreement dated as of May 1, 1998 between Entergy Gulf States and Industrial Development Board of the Parish of Calcasieu, Inc. (B-3(b) to Rule 24 Certificate dated January 29, 1999 in 70-8721). |
(d) 38 -- |
Refunding Agreement (Series 1999-A) dated as of September 1, 1999 between Entergy Gulf States and Parish of West Feliciana, State of Louisiana (B-3(c) to Rule 24 Certificate dated October 8, 1999 in 70-8721). |
(d) 39 -- |
Refunding Agreement (Series 1999-B) dated as of September 1, 1999 between Entergy Gulf States and Parish of West Feliciana, State of Louisiana (B-3(d) to Rule 24 Certificate dated October 8, 1999 in 70-8721). |
Entergy Louisiana Holdings, Inc.
(e) 1 -- |
Middle South Utilities, Inc. and Subsidiary Companies Intercompany Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). |
(e) 2 -- |
First Amendment, dated January 1, 1990, to the Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated January 1, 1990 (D-2 to Form U5S for the year ended December 31, 1989). |
(e) 3 -- |
Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). |
(e) 4 -- |
Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(e) 5 -- |
Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
(e) 6 -- |
Service Agreement between Entergy Services and Entergy Louisiana Holdings, dated as of December 31, 2005 (B-9(i) to Rule 24 Certificate dated January 10, 2006 in 70-10324). |
Entergy Louisiana, LLC
(f) 1 -- |
Agreement, dated April 23, 1982, among Entergy Louisiana and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a)1 to Form 10-K for the year ended December 31, 1982, in 1-3517). |
(f) 2 -- |
Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)2 in 2-41080). |
(f) 3 -- |
Amendment, dated as of February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(f) 4 -- |
Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(f) 5 -- |
Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)3 in 2-41080). |
(f) 6 -- |
Service Agreement with Entergy Services, dated as of April 1, 1963 (5(a)5 in 2-42523). |
(f) 7 -- |
Amendment, dated as of April 27, 1984, to Service Agreement with Entergy Services (10(a)7 to Form 10-K for the year ended December 31, 1984 in 1-3517). |
(f) 8 -- |
Amendment, dated January 1, 2000, to Service Agreement with Entergy Services (10(e)12 to Form 10-K for the year ended December 31, 2002 in 1-8474). |
(f) 9 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(e)9 to Form 10-K for the year ended December 31, 2004 in 1-8474). |
(f) 10 through (f) 25 -- See 10(a)10 through 10(a)25 above. |
|
(f) 26 -- |
Fuel Lease, dated as of January 31, 1989, between River Fuel Company #2, Inc., and Entergy Louisiana (B-1(b) to Rule 24 Certificate in 70-7580). |
(f) 27 -- |
Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). |
(f) 28 -- |
Compromise and Settlement Agreement, dated June 4, 1982, between Texaco, Inc. and Entergy Louisiana (28(a) to Form 8-K dated June 4, 1982 in 1-8474). |
(f) 29 -- |
Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a)39 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(f) 30 -- |
First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). |
(f) 31 -- |
Revised Unit Power Sales Agreement (10(ss) in 33-4033). |
(f) 32 -- |
Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste, dated February 2, 1984, among DOE, System Fuels and Entergy Louisiana (10(d)33 to Form 10-K for the year ended December 31, 1984 in 1-8474). |
(f) 33-- |
Operating Agreement between Entergy Operations and Entergy Louisiana, dated as of June 6, 1990 (B-2(c) to Rule 24 Certificate dated June 15, 1990 in 70-7679). |
(f) 34 -- |
Guarantee Agreement between Entergy Corporation and Entergy Louisiana, dated as of September 20, 1990 (B-2(a) to Rule 24 Certificate dated September 27, 1990 in 70-7757). |
(f) 35 -- |
Refunding Agreement (Series 1999-A), dated as of June 1, 1999, between Entergy Louisiana and Parish of St. Charles, State of Louisiana (B-6(a) to Rule 24 Certificate dated July 6, 1999 in 70-9141). |
(f) 36 -- |
Amendment No. 1 to Refunding Agreement (Series 1999-A), dated as of December 15, 2005 (B-8(i) to Rule 24 Certificate dated January 10, 2006 in 70-10324). |
(f) 37 -- |
Refunding Agreement (Series 1999-B), dated as of June 1, 1999, between Entergy Louisiana and Parish of St. Charles, State of Louisiana (B-6(b) to Rule 24 Certificate dated July 6, 1999 in 70-9141). |
(f) 38 -- |
Amendment No. 1 to Refunding Agreement (Series 1999-B), dated as of December 16, 2005 (B-8(ii) to Rule 24 Certificate dated January 10, 2006 in 70-10324). |
(f) 39 -- |
Refunding Agreement (Series 1999-C), dated as of October 1, 1999, between Entergy Louisiana and Parish of St. Charles, State of Louisiana (B-11(a) to Rule 24 Certificate dated October 15, 1999 in 70-9141). |
(f) 40 -- |
Amendment No. 1 to Refunding Agreement (Series 1999-C), dated as of December 15, 2005 (B-8(iii) to Rule 24 Certificate dated January 10, 2006 in 70-10324). |
Entergy Mississippi
(g) 1 -- |
Agreement dated April 23, 1982, among Entergy Mississippi and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a)1 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(g) 2 -- |
Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)2 in 2-41080). |
(g) 3 -- |
Amendment, dated February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(g) 4 -- |
Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(g) 5 -- |
Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)3 in 2-41080). |
(g) 6 -- |
Service Agreement with Entergy Services, dated as of April 1, 1963 (D in 37-63). |
(g) 7 -- |
Amendment, dated April 27, 1984, to Service Agreement with Entergy Services (10(a)7 to Form 10-K for the year ended December 31, 1984 in 1-3517). |
(g) 8 -- |
Amendment, dated January 1, 2000, to Service Agreement with Entergy Services (10(f)12 to Form 10-K for the year ended December 31, 2002 in 1-31508). |
(g) 9 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(f)9 to Form 10-K for the year ended December 31, 2004 in 1-31508). |
(g) 10 through (g) 25 -- See 10(a)10 through 10(a)25 above. |
|
(g) 26 -- |
Loan Agreement, dated as of September 1, 2004, between Entergy Mississippi and Mississippi Business Finance Corporation (B-3(a) to Rule 24 Certificate dated October 4, 2004 in 70-10157). |
(g) 27 -- |
Refunding Agreement, dated as of May 1, 1999, between Entergy Mississippi and Independence County, Arkansas (B-6(a) to Rule 24 Certificate dated June 8, 1999 in 70-8719). |
(g) 28 -- |
Substitute Power Agreement, dated as of May 1, 1980, among Entergy Mississippi, System Energy and SMEPA (B-3(a) in 70-6337). |
(g) 29 -- |
Amendment, dated December 4, 1984, to the Independence Steam Electric Station Operating Agreement (10(c)51 to Form 10-K for the year ended December 31, 1984 in 0-375). |
(g) 30 -- |
Amendment, dated December 4, 1984, to the Independence Steam Electric Station Ownership Agreement (10(c)54 to Form 10-K for the year ended December 31, 1984 in 0-375). |
(g) 31 -- |
Owners Agreement, dated November 28, 1984, among Entergy Arkansas, Entergy Mississippi and other co-owners of the Independence Station (10(c)55 to Form 10-K for the year ended December 31, 1984 in 0-375). |
(g) 32 -- |
Consent, Agreement and Assumption, dated December 4, 1984, among Entergy Arkansas, Entergy Mississippi, other co-owners of the Independence Station and United States Trust Company of New York, as Trustee (10(c)56 to Form 10-K for the year ended December 31, 1984 in 0-375). |
(g) 33 -- |
Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). |
+(g) 34 -- |
Post-Retirement Plan (10(d)24 to Form 10-K for the year ended December 31, 1983 in 0-320). |
(g) 35 -- |
Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (10(a)39 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(g) 36 -- |
First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). |
(g) 37 -- |
Revised Unit Power Sales Agreement (10(ss) in 33-4033). |
(g) 38 -- |
Sales Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (D to Rule 24 Certificate dated June 26, 1974 in 70-5399). |
(g) 39 -- |
Service Agreement, dated as of June 21, 1974, between System Energy and Entergy Mississippi (E to Rule 24 Certificate dated June 26, 1974 in 70-5399). |
(g) 40 -- |
Partial Termination Agreement, dated as of December 1, 1986, between System Energy and Entergy Mississippi (A-2 to Rule 24 Certificate dated January 8, 1987 in 70-5399). |
(g) 41 -- |
Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). |
(g) 42 -- |
First Amendment dated January 1, 1990 to the Middle South Utilities Inc. and Subsidiary Companies Intercompany Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). |
(g) 43 -- |
Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). |
(g) 44 -- |
Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(g) 45 -- |
Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
+(g) 46 -- |
Employment Agreement effective July 24, 2003 between Carolyn C. Shanks and Entergy Mississippi (10(f)48 to Form 10-K for the year ended December 31, 2003 in 1-31508). |
(g) 47 -- |
Purchase and Sale Agreement by and between Central Mississippi Generating Company, LLC and Entergy Mississippi, Inc., dated as of March 16, 2005 (10(b) to Form 10-Q for the quarter ended March 31, 2005 in 1-31508). |
Entergy New Orleans
(h) 1 -- |
Agreement, dated April 23, 1982, among Entergy New Orleans and certain other System companies, relating to System Planning and Development and Intra-System Transactions (10(a)1 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(h) 2 -- |
Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)2 in 2-41080). |
(h) 3 -- |
Amendment dated as of February 10, 1971, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(h) 4 -- |
Amendment, dated May 12, 1988, to Middle South Utilities System Agency Agreement, dated December 11, 1970 (5(a)4 in 2-41080). |
(h) 5 -- |
Middle South Utilities System Agency Coordination Agreement, dated December 11, 1970 (5(a)3 in 2-41080). |
(h) 6 -- |
Service Agreement with Entergy Services dated as of April 1, 1963 (5(a)5 in 2-42523). |
(h) 7 -- |
Amendment, dated as of April 27, 1984, to Service Agreement with Entergy Services (10(a)7 to Form 10-K for the year ended December 31, 1984 in 1-3517). |
(h) 8 -- |
Amendment, dated January 1, 2000, to Service Agreement with Entergy Services (10(g)12 to Form 10-K for the year ended December 31, 2002 in 0-5807). |
(h) 9 -- |
Amendment, dated March 1, 2004, to Service Agreement with Entergy Services (10(g)9 to Form 10-K for the year ended December 31, 2004 in 0-5807). |
(h) 10 through (h) 25 -- See 10(a)10 through 10(a)25 above. |
|
(h) 26 -- |
Reallocation Agreement, dated as of July 28, 1981, among System Energy and certain other System companies (B-1(a) in 70-6624). |
(h) 27 -- |
Unit Power Sales Agreement, dated as of June 10, 1982, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (10(a)39 to Form 10-K for the year ended December 31, 1982 in 1-3517). |
(h) 28 -- |
First Amendment to the Unit Power Sales Agreement, dated as of June 28, 1984, between System Energy and Entergy Arkansas, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans (19 to Form 10-Q for the quarter ended September 30, 1984 in 1-3517). |
(h) 29 -- |
Revised Unit Power Sales Agreement (10(ss) in 33-4033). |
(h) 30 -- |
Transfer Agreement, dated as of June 28, 1983, among the City of New Orleans, Entergy New Orleans and Regional Transit Authority (2(a) to Form 8-K dated June 24, 1983 in 1-1319). |
(h) 31 -- |
Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement, dated April 28, 1988 (D-1 to Form U5S for the year ended December 31, 1987). |
(h) 32 -- |
First Amendment, dated January 1, 1990, to the Middle South Utilities, Inc. and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-2 to Form U5S for the year ended December 31, 1989). |
(h) 33 -- |
Second Amendment dated January 1, 1992, to the Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3 to Form U5S for the year ended December 31, 1992). |
(h) 34 -- |
Third Amendment dated January 1, 1994 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-3(a) to Form U5S for the year ended December 31, 1993). |
(h) 35 -- |
Fourth Amendment dated April 1, 1997 to Entergy Corporation and Subsidiary Companies Intercompany Income Tax Allocation Agreement (D-5 to Form U5S for the year ended December 31, 1996). |
(12) Statement Re Computation of Ratios
*(a) |
Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. |
*(b) |
Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. |
*(c) |
Entergy Louisiana Holdings, Inc.'s Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. |
*(d) |
Entergy Louisiana, LLC's Computation of Ratios of Earnings to Fixed Charges, as defined. |
*(e) |
Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. |
*(f) |
Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Fixed Charges and Preferred Dividends, as defined. |
*(g) |
System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. |
*(21) Subsidiaries of the Registrants
(23) Consents of Experts and Counsel
*(a) |
The consent of Deloitte & Touche LLP is contained herein at page 422. |
*(b) |
Consent of Ernst & Young LLP. |
*(24) Powers of Attorney
(31) Rule 13a-14(a)/15d-14(a) Certifications
*(a) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation. |
*(b) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation. |
*(c) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas. |
*(d) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States. |
*(e) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana Holdings, Inc. |
*(f) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States and Entergy Louisiana, LLC. |
*(g) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi. |
*(h) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans. |
*(i) |
Rule 13a-14(a)/15d-14(a) Certification for System Energy. |
*(j) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, LLC, Entergy Mississippi, and Entergy New Orleans. |
*(k) |
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana Holdings, Inc. |
*(l) |
Rule 13a-14(a)/15d-14(a) Certification for System Energy. |
(32) Section 1350 Certifications
*(a) |
Section 1350 Certification for Entergy Corporation. |
*(b) |
Section 1350 Certification for Entergy Corporation. |
*(c) |
Section 1350 Certification for Entergy Arkansas. |
*(d) |
Section 1350 Certification for Entergy Gulf States. |
*(e) |
Section 1350 Certification for Entergy Louisiana Holdings, Inc. |
*(f) |
Section 1350 Certification for Entergy Gulf States and Entergy Louisiana, LLC. |
*(g) |
Section 1350 Certification for Entergy Mississippi. |
*(h) |
Section 1350 Certification for Entergy New Orleans. |
*(i) |
Section 1350 Certification for System Energy. |
*(j) |
Section 1350 Certification for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, LLC, Entergy Mississippi, and Entergy New Orleans. |
*(k) |
Section 1350 Certification for Entergy Louisiana Holdings, Inc. |
*(l) |
Section 1350 Certification for System Energy. |
(99) Additional Exhibits
*(a) |
Entergy-Koch, LP Financial Statements for the year 2005. |
*(b) |
Entergy-Koch, LP Financial Statements for the years 2004, 2003, and 2002. |
_________________
* Filed herewith.
+ Management contracts or compensatory plans or arrangements.
Exhibit 3(e)1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ENTERGY LOUISIANA HOLDINGS, INC.
ARTICLE 1
The name of this corporation (sometimes hereinafter referred to as the "Corporation") is and shall be Entergy Louisiana Holdings, Inc.
ARTICLE 2
The Corporation shall have perpetual existence.
ARTICLE 3
The Corporation is being incorporated pursuant to a plan of conversion under which Entergy Louisiana, Inc., a Louisiana corporation formed on October 15, 1974 with its principal place of business located at 4809 Jefferson Highway, Jefferson, Louisiana 70121-3126, as the converting entity, is converting into the Corporation, as the converted entity. Articles of Conversion for the Corporation are being filed with the Secretary of State of Texas with these Articles of Incorporation.
ARTICLE 4
The objects and purposes of this Corporation and for which the Corporation is organized are stated and declared to be to engage in any lawful activity for which corporations may be formed under the Texas Business Corporation Act (the "Act"), including specifically, but not by way of limitation, the purchasing or otherwise acquiring, holding, mortgaging or otherwise encumbering, and selling or otherwise alienating of real estate and all forms of immovable property, as well as all forms of personal and mixed property; and further, and without in any way limiting the foregoing, the Corporation shall have all powers which corporations may have, and may carry on all businesses of any and every nature and kind which corporations may carry on, under the Act, including, but not by way of limitation, the following business or businesses:
To acquire, buy, hold, own, sell, lease, exchange, dispose of, pledge, mortgage, encumber, hypothecate, finance, deal in, construct, build, install, equip, improve, use, operate, maintain and work upon:
(a) Any and all kinds of plants and systems for the manufacture, production, generation, storage, utilization, purchase, sale, supply, transmission, distribution or disposition of electricity, gas or water, or power produced thereby;
(b) Any and all kinds of plants and systems for the manufacture of ice;
(c) Any and all kinds of works, power plants, structures, substations, systems, tracks, machinery, generators, motors, lamps, poles, pipes, wires, cables, conduits, apparatus, devices, equipment, supplies, articles and merchandise of every kind in anywise connected with or pertaining to the manufacture, production, generation, purchase, use, sale, supply, transmission, distribution, regulation, control or application of electricity, gas, water and power;
To acquire, buy, hold, own, sell, lease, exchange, dispose of, transmit, distribute, deal in, use, manufacture, produce, furnish and supply electricity, power, energy, gas, light, heat and water in any form and for any purposes whatsoever;
To purchase, acquire, develop, hold, own and dispose of lands, interests in and rights with respect to lands and waters and fixed and movable or personal property necessary or suitable for the carrying out of any of the foregoing powers;
To borrow money and contract debts when necessary for the transaction of the business of the Corporation or for the exercise of its rights, privileges or franchises or for any other lawful purpose of its incorporation; to issue bonds, promissory notes, bills of exchange, debentures and other obligations and evidences of indebtedness payable at a specified time or times or payable upon the happening of a specified event or events, whether secured by mortgage, pledge, or otherwise, or unsecured, for money borrowed or in payment for property purchased or acquired or any other lawful objects;
To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the shares of the capital stock or other evidences of ownership of, or any bonds, securities or evidences of indebtedness created by, any other entity or entities organized under the laws of the State of Texas or of any other state or government and formed for the purpose of carrying out any of the foregoing powers and, while the owner of such stock or other evidence of ownership, to exercise all the rights, powers and privileges of ownership, including the right to vote thereon, and to do any acts designed to protect, preserve, improve or enhance the value of any property at any time held or controlled by the Corporation, or in which it may be at any time interested; and to organize or promote or facilitate the organization of subsidiary companies for the purpose of carrying out any of the foregoing powers;
To purchase, hold, sell and transfer shares of its own capital stock, provided that the Corporation shall not purchase its own shares of capital stock except from the surplus of its assets over its liabilities including capital, and provided, further, that the shares of its own capital stock owned by the Corporation shall not be voted upon directly or indirectly, nor counted as outstanding for the purposes of any shareholders' quorum or vote;
To conduct business at one or more offices and hold, purchase, mortgage and convey real and personal property in the State of Texas and in any of the several states, territories, possessions and dependencies of the United States, the District of Columbia and foreign countries;
In any manner to acquire, enjoy, utilize and to dispose of patents, copyrights and trademarks and any licenses or other rights or interests therein and thereunder necessary for and in its opinion useful or desirable for or in connection with the foregoing powers;
To purchase acquire, hold, own and dispose of franchises, concessions, consents, privileges and licenses necessary for and in its opinion useful or desirable for or in connection with the foregoing powers; and
To do all and everything necessary and proper for the accomplishment of the objects enumerated in these Articles of Incorporation or any amendment thereof or necessary or incidental to the protection and benefit of the Corporation.
ARTICLE 5
I
The aggregate number of shares of stock which the Corporation shall have authority to issue and have outstanding at any time is as follows:
(a) 250,000,000 shares of Common Stock, without nominal or par value (hereinafter called the "Common Stock").
(b) 4,500,000 shares of preferred stock having a par value of $100.00 per share, which shall all be of one class (hereinafter called the "$100 Preferred Stock"), and 22,000,000 shares of preferred stock having a par value of $25.00 per share, which shall all be of one class (hereinafter called the "$25 Preferred Stock"), which said two classes of preferred stock are hereinafter together referred to as the "Preferred Stock", and, for certain purposes and to such extent as are hereinafter set forth, are treated or referred to together as a single class of stock; and further with respect to the Preferred Stock:
(i) Said 4,500,000 shares of $100 Preferred Stock shall be issuable in one or more series from time to time; 635,000 of said shares of $100 Preferred Stock shall be divided into eight series, one of which shall consist of 60,000 shares of 4.96% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "First Series Preferred Stock"), one of which shall consist of 70,000 shares of 4.16% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "Second Series Preferred Stock"), one of which shall consist of 70,000 shares of 4.44% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "Third Series Preferred Stock"), one of which shall consist of 75,000 shares of 5.16% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "Fourth Series Preferred Stock"), one of which shall consist of 80,000 shares of 5.40% Preferred Stock, Cumulative, $100.00 par value (hereinafter so metimes called "Fifth Series Preferred Stock"), one of which shall consist of 80,000 shares of 6.44% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "Sixth Series Preferred Stock"), one of which shall consist of 100,000 shares of 7.84% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "Eighth Series Preferred Stock"), and one of which shall consist of 100,000 shares of 7.36% Preferred Stock, Cumulative, $100.00 par value (hereinafter sometimes called "Ninth Series Preferred Stock"); and the remaining 3,865,000 of said shares of $100 Preferred Stock may be divided into additional series from time to time, each such additional series to be provided for and to be distinctively designated, and the issuance of the shares of each such additional series to be authorized, in and by a resolution or resolutions to be adopted by the Board of Directors of the Corporation in accordance with the provisions hereof, and each such additional series to be issued only after the filing with the Secretary of State of Texas of a statement as set forth in Section D of Article 2.13 of the Act.
(ii) Said 22,000,000 shares of $25 Preferred Stock shall be issuable in one or more series from time to time; one series of $25 Preferred Stock shall consist of 1,480,000 shares of 8% Preferred Stock, Cumulative, $25.00 par value (hereinafter sometimes called "Series H Preferred Stock"); and the remaining 20,520,000 of said shares of $25 Preferred Stock may be divided into additional series from time to time, each such additional series to be provided for and to be distinctively designated, and the issuance of the shares of each such additional series to be authorized, in and by a resolution or resolutions to be adopted by the Board of Directors of the Corporation in accordance with the provisions hereof, and each such additional series to be issued only after the filing with the Secretary of State of Texas of a statement as set forth in Section D of Article 2.13 of the Act.
II
The shares of each class of Preferred Stock shall have the same rank and shall have the same relative rights except as to matters relating to the par values and voting rights thereof (including matters relating to quorums and adjournments) and those characteristics with respect to which there may be variations among the respective series of Preferred Stock.
The shares of each series of Preferred Stock shall have the same rank and shall have the same relative rights except with respect to such characteristics as are peculiar to or pertain only to the particular series of such class and with respect to the following characteristics:
(a) The number of shares to constitute each such series and the distinctive designation thereof;
(b) The annual rate or rates of dividends payable on shares of such series and the date from which such dividends shall commence to accumulate;
(c) The amount or amounts payable upon redemption thereof; and
(d) The terms and amount of the sinking fund requirements (if any) for the purchase or redemption of shares of each series of Preferred Stock other than the First through Sixth and the Eighth and Ninth Series Preferred Stock;
which different characteristics of clauses (a), (b), and (c) above are herein set forth with respect to the First through Sixth and the Eighth and Ninth Series Preferred Stock and of clauses (a), (b), (c), and (d) above are herein set forth with respect to the Series H Preferred Stock, and, with respect to each additional series of Preferred Stock, the designation of the class thereof and the different characteristics of clauses (a), (b), (c), and (d) above shall be set forth in the resolution or resolutions of the Board of Directors of the Corporation providing for such series.
III
Further provisions with respect to the Preferred Stock and the Common Stock are and shall be as set forth hereinafter in this Part III of Article 5 and hereinafter in these Articles of Incorporation.
(A) The Preferred Stock shall be entitled, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, in preference to the Common Stock, to dividends at the rate of 4.96% per annum on the First Series Preferred Stock, at the rate of 4.16% per annum on the Second Series Preferred Stock, at the rate of 4.44% per annum on the Third Series Preferred Stock, at the rate of 5.16% per annum on the Fourth Series Preferred Stock, at the rate of 5.40% per annum on the Fifth Series Preferred Stock, at the rate of 6.44% per annum on the Sixth Series Preferred Stock, at the rate of 7.84% per annum on the Eighth Series Preferred Stock, at the rate of 7.36% per annum on the Ninth Series Preferred Stock, at the rate of 8% per annum on the Series H Preferred Stock, of the par value thereof, and no more, and at such rate per annum on each additional series as shall be fixed in and by the resolution or resolutions of the Board of Directors of the C orporation providing for the issuance of the shares of such series, payable quarterly on February 1, May 1, August 1 and November 1 of each year to shareholders of record as of a date, not exceeding forty (40) days and not less than ten (10) days preceding such dividend payment dates, to be fixed by the Board of Directors, such dividends to be cumulative from the last date to which dividends upon the First through Sixth and the Eighth and Ninth Series Preferred Stock of Louisiana Power & Light Company, a Florida corporation, are paid, with respect to the First through Sixth and the Eighth and Ninth Series Preferred Stock, from October 29, 1992 with respect to the Series H Preferred Stock, and from such date with respect to each additional series, if made cumulative in and by the resolution or resolutions of the Board of Directors of the Corporation providing for such series, as shall be fixed in and by such resolution or resolutions, provided that, if such resolution or resolutions so provide, the first dividend payment date for any such additional series may be the dividend payment date next succeeding the dividend payment date immediately following the issuance of the shares of such series.
(B) If and when dividends payable on any of the Preferred Stock of the Corporation at any time outstanding shall be in default in an amount equal to four full quarterly payments or more per share, and thereafter until all dividends on any such Preferred Stock in default shall have been paid, the holders of the Preferred Stock, voting separately as a class, shall be entitled to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors, and the holders of the Common Stock, voting separately as a class, shall be entitled to elect the remaining directors of the Corporation, anything herein to the contrary notwithstanding. The terms of office, as directors, of all persons who may be directors of the Corporation at the time shall terminate upon the election of a majority of the Board of Directors by the holders of the Preferred Stock, except that if the holders of the Common Stock shall not have elected the remaining directors of the Corporation , then, and only in that event, the directors of the Corporation in office just prior to the election of a majority of the Board of Directors by the holders of the Preferred Stock shall elect the remaining directors of the Corporation. Thereafter, while such default continues and the majority of the Board of Directors is being elected by the holders of the Preferred Stock, the remaining directors, whether elected by directors, as aforesaid, or whether originally or later elected by holders of the Common Stock, shall continue in office until their successors are elected by holders of the Common Stock and shall qualify.
If and when all dividends then in default on the Preferred Stock then outstanding shall be paid (such dividends to be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of the Preferred Stock shall be divested of any special right with respect to the election of directors, and the voting power of the holders of the Preferred Stock and the holders of the Common Stock shall revert to the status existing before the first dividend payment date on which dividends on the Preferred Stock were not paid in full, but always subject to the same provisions for vesting such special rights in the holders of the Preferred Stock in case of further like defaults in the payment of dividends thereon as described in the immediately foregoing paragraph. Upon termination of any such special voting right upon payment of all accumulated and unpaid dividends on the Preferred Stock, the terms of office of all persons who may have been elected directors of the Corporation by vote of the holders of the Preferred Stock as a class, pursuant to such special voting right, shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining directors.
In case of any vacancy in the office of a director occurring among the directors elected by the holders of the Preferred Stock, voting separately as a class, the remaining directors elected by the holders of the Preferred Stock, by affirmative vote of a majority thereof, or the remaining director so elected, if there be but one, may elect a successor or successors to hold office for the unexpired term or terms of the director or directors whose place or places shall be vacant. Likewise, in case of any vacancy in the office of a director occurring among the directors not elected by the holders of the Preferred Stock, the remaining directors not elected by the holders of the Preferred Stock, by affirmative vote of a majority thereof, or the remaining director so elected if there be but one, may elect a successor or successors to hold office for the unexpired term or terms of the director or directors whose place or places shall be vacant.
Whenever the right shall have accrued to the holders of the Preferred Stock to elect directors, voting separately as a class, it shall be the duty of the President, a Vice President or the Secretary of the Corporation forthwith to call and cause notice to be given to the shareholders entitled to vote of a meeting to be held at such time as the Corporation's officers may fix, not less than forty-five (45) nor more than sixty (60) days after the accrual of such right, for the purpose of electing directors. The notice so given shall be mailed to each holder of record of the Preferred Stock at his last known address appearing on the books of the Corporation and shall set forth, among other things, (i) that by reason of the fact that dividends payable on the Preferred Stock are in default in an amount equal to four full quarterly payments or more per share, the holders of the Preferred Stock, voting separately as a class, have the right to elect the smallest number of directors necessary to co nstitute a majority of the full Board of Directors of the Corporation, (ii) that any holder of the Preferred Stock has the right, at any reasonable time, to inspect, and make copies of, the list or lists of holders of the Preferred Stock maintained at the principal office of the Corporation or at the office of any transfer agent of the Preferred Stock, and (iii) either the entirety of this paragraph or the substance thereof with respect to the number of shares of the Preferred Stock required to be represented at any meeting, or adjournment thereof, called for the election of directors of the Corporation. At the first meeting of shareholders held for the purpose of electing directors during such time as the holders of the Preferred Stock shall have the special right, voting separately as a class, to elect directors, the presence in person or by proxy of the holders of a majority of the outstanding Common Stock shall be required to constitute a quorum of such class for the election of directors, and the prese nce in person or by proxy of the holders of a majority of the outstanding Preferred Stock shall be required to constitute a quorum of such class for the election of directors; provided, however, that in the absence of a quorum of the holders of the Preferred Stock, no election of directors shall be held, but a majority of the holders of the Preferred Stock who are present in person or by proxy shall have power to adjourn the election of the directors to a date not less than fifteen (15) nor more than fifty (50) days from the giving of the notice of such adjourned meeting hereinafter provided for; and provided, further, that at such adjourned meeting, the presence in person or by proxy of the holders of 35% of the outstanding Preferred Stock shall be required to constitute a quorum of such class for the election of directors. In the event such first meeting of shareholders shall be so adjourned, it shall be the duty of the President, a Vice President or the Secretary of the Corporation, within ten (10) days from the date on which such first meeting shall have been adjourned, to cause notice of such adjourned meeting to be given to the shareholders entitled to vote thereat, such adjourned meeting to be held not less than fifteen (15) days nor more than fifty (50) days from the giving of such second notice; such second notice shall be given in the form and manner hereinabove provided for with respect to the notice required to be given of such first meeting of shareholders, and shall further set forth that a quorum was not present at such first meeting and that the holders of 35% of the outstanding Preferred Stock shall be required to constitute a quorum of such class for the election of directors at such adjourned meeting. If the requisite quorum of holders of the Preferred Stock shall not be present at said adjourned meeting, then the directors of the Corporation then in office shall remain in office until the next Annual Meeting of the Corporation, or special meeting in lieu thereof and until their successors shall have been elected and shall qualify. Neither such first meeting nor such adjourned meeting shall be held on a date within sixty (60) days of the date of the next Annual Meeting of the Corporation or special meeting in lieu thereof. At each Annual Meeting of the Corporation, or special meeting in lieu thereof, held during such time as the holders of the Preferred Stock, voting separately as a class, shall have the right to elect a majority of the Board of Directors, the foregoing provisions of this paragraph shall govern each Annual Meeting, or special meeting in lieu thereof, as if said Annual Meeting or special meeting were the first meeting of shareholders held for the purpose of electing directors after the right of the holders of the Preferred Stock, voting separately as a class, to elect a majority of the Board of Directors, should have accrued with the exception, that, if at any adjourned annual meeting, or special meeting in lieu thereof, 35% of the outstanding Preferred Stock is not present i n person or by proxy, all the directors shall be elected by a vote of the holders of a majority of the Common Stock of the Corporation present or represented at the meeting.
(C) So long as any shares of the Preferred Stock are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of at least two-thirds of the total number of shares of the Preferred Stock then outstanding:
(1) create, authorize or issue any new stock which, after issuance would rank prior to the Preferred Stock as to dividends, in liquidation, dissolution, winding up or distribution, or create, authorize or issue any security convertible into shares of any such stock except for the purpose of providing funds for the redemption of all of the Preferred Stock then outstanding, such new stock or security not to be issued until such redemption shall have been authorized and notice of such redemption given and the aggregate redemption price deposited as provided in paragraph (G) below; provided, however, that any such new stock or security shall be issued within twelve months (and so long as any of the First Series Preferred Stock remains outstanding, within 180 days) after the vote of the Preferred Stock herein provided for authorizing the issuance of such new stock or security;
(2) amend, alter, change or repeal any of the express terms of any of the Preferred Stock then outstanding in a manner prejudicial to the holders thereof; the increase or decrease in the authorized amount of the Preferred Stock or the creation, or increase or decrease in the authorized amount, of any new class of stock ranking on a parity with the Preferred Stock shall not, for the purposes of this paragraph, be deemed to be prejudicial to the holders of the Preferred Stock; or
(3) merge or consolidate with or into any other corporation or corporations or sell or otherwise dispose of all or substantially all of the assets of the Corporation, unless such merger or consolidation or sale or other disposition, or the exchange, issuance or assumption of all securities to be issued or assumed in connection with any such merger or consolidation or sale or other disposition, shall have been ordered, approved or permitted by regulatory authority of the United States of America under the provisions of the Public Utility Holding Company Act of 1935; provided that the provisions of this sub-paragraph (3) shall not apply to a purchase or other acquisition by the Corporation of franchises or assets of another corporation in any manner which does not involve a corporate merger or consolidation.
(D) So long as any shares of the Preferred Stock are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of a majority of the total number of shares of the Preferred Stock then outstanding:
(1) issue or assume any unsecured notes, debentures or other securities representing unsecured indebtedness for purposes other than (i) the refunding of outstanding unsecured indebtedness theretofore issued or assumed by the Corporation, (ii) the reacquisition, redemption or other retirement of any indebtedness, which reacquisition, redemption or other retirement has been authorized by the Securities and Exchange Commission under the provisions of the Public Utility Holding Company Act of 1935 or by any applicable regulatory authority under any successor law, or (iii) the reacquisition, redemption or other retirement of all outstanding shares of the Preferred Stock, or preferred stock ranking prior to, or pari passu with, the Preferred Stock, if immediately after such issue or assumption, the total principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness issued or assumed by the Corporation, including unsecured indebtednes s then to be issued or assumed (but excluding the principal amount then outstanding of any unsecured notes, debentures or other securities representing unsecured indebtedness having a maturity in excess of ten (10) years and in amount not exceeding 10% of the aggregate of (a) and (b) of this sub-paragraph (1) below) would exceed ten per centum (10%) of the aggregate of (a) the total principal amount of all bonds or other securities representing secured indebtedness issued or assumed by the Corporation and then to be outstanding, and (b) the capital and surplus of the Corporation as then to be stated on the books of account of the Corporation. When unsecured notes, debentures or other securities representing unsecured debt of a maturity in excess of ten (10) years shall become of a maturity of ten (10) years or less, it shall then be regarded as unsecured debt of a maturity of less than ten (10) years and shall be computed with such debt for the purpose of determining the percentage ratio to the sum of (a) a nd (b) above of unsecured debt of a maturity of less than ten (10) years, and when provision shall have been made, whether through a sinking fund or otherwise, for the retirement, prior to their maturity, of unsecured notes, debentures or other securities representing unsecured debt of a maturity in excess of ten (10) years, the amount of such security so required to be retired in less than ten (10) years shall be regarded as unsecured debt of a maturity of less than ten (10) years (and not as unsecured debt of a maturity in excess of ten (10) years) and shall be computed with such debt for the purpose of determining the percentage ratio to the sum of (a) and (b) above of unsecured debt of a maturity of less than ten (10) years; provided, however, that the payment due upon the maturity of unsecured debt having an original single maturity in excess of ten (10) years or the payment due upon the latest maturity of any serial debt which had original maturities in excess of ten (10) years shall not, for the purpo ses of this provision, be regarded as unsecured debt of a maturity of less than ten (10) years until such payment or payments shall be required to be made within five (5) years (provided the words "five (5) years" shall read "three (3) years" when none of the First Series Preferred Stock remains outstanding); furthermore, when unsecured notes, debentures or other securities representing unsecured debt of a maturity of less than ten (10) years shall exceed 10% of the sum of (a) and (b) above, no additional unsecured notes, debentures or other securities representing unsecured debt shall be issued or assumed (except for the purposes set forth in (i), (ii) and (iii) above) until such ratio is reduced to 10% of the sum of (a) and (b) above; or
(2) issue, sell, or otherwise dispose of any shares of the Preferred Stock in addition to the 635,000 shares of the First through Sixth and the Eight and Ninth Series Preferred Stock originally authorized, or of any other class of stock ranking on a parity with the Preferred Stock as to dividends or in liquidation, dissolution, winding up or distribution, (a) so long as any of the First Series Preferred Stock remains outstanding, unless the net income of the Corporation and Louisiana Power & Light Company, a Florida corporation, determined, after provision for depreciation and all taxes and in accordance with generally accepted accounting practices, to be available for the payment of dividends for a period of twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the issuance, sale or disposition of such stock, is at least equal to twice the annual dividend requirements on all outstanding shares of the Preferred Stock and of all other c lasses of stock ranking prior to, or on a parity with, the Preferred Stock as to dividends or distributions, including the shares proposed to be issued, and (b) so long as any Preferred Stock remains outstanding, unless the gross income of the Corporation and Louisiana Power & Light Company, a Florida corporation, for such period, determined in accordance with generally accepted accounting practices (but in any event after deducting all taxes and the greater of (a) the amount for said period charged by the Corporation and Louisiana Power & Light Company, a Florida corporation, on their books to depreciation expense or (b) the largest amount required to be provided therefor by any mortgage indenture of the Corporation) to be available for the payment of interest, shall have been at least one and one-half times the sum of (i) the annual interest charges on all interest indebtedness of the Corporation and (ii) the annual dividend requirements on all outstanding shares of the Preferred Stock and of all o ther classes of stock ranking prior to, or on a parity with, the Preferred Stock as to dividends or distributions, including the shares proposed to be issued; provided, that there shall be excluded from the foregoing computation interest charges on all indebtedness and dividends on all shares of stock which are to be retired in connection with the issue of such additional shares; and provided, further, that in any case where such additional shares of the Preferred Stock, or other class of stock ranking on a parity with the Preferred Stock as to dividends or distributions, are to be issued in connection with the acquisition of new property, the net income and gross income of the property to be so acquired, computed on the same basis as the net income and gross income of the Corporation, may be included on a pro forma basis in making the foregoing computation; or
(3) issue, sell, or otherwise dispose of any shares of the Preferred Stock, in addition to the 635,000 shares of the First through Sixth and the Eighth and Ninth Series Preferred Stock originally authorized, or of any other class of stock ranking on a parity with the Preferred Stock as to dividends or distributions, unless the aggregate of the capital of the Corporation applicable to the Common Stock and the surplus of the Corporation shall be not less than the aggregate amount payable on the involuntary liquidation, dissolution or winding up of the Corporation, in respect of all shares of the Preferred Stock and all shares of stock, if any, ranking prior thereto, or on a parity therewith, as to dividends or distributions, which will be outstanding after the issue of the shares proposed to be issued; provided, that if, for the purposes of meeting the requirements of this sub-paragraph (3), it becomes necessary to take into consideration any earned surplus of the Corporation, the Corpora tion shall not thereafter pay any dividends on shares of the Common Stock which would result in reducing the Corporation's Common Stock Equity (as in paragraph (H) hereinafter defined) to an amount less than the aggregate amount payable, on involuntary liquidation, dissolution or winding up of the Corporation, on all shares of the Preferred Stock and of any stock ranking prior to, or on a parity with, the Preferred Stock, as to dividends or other distributions, at the time outstanding.
(E) Each holder of Common Stock of the Corporation shall be entitled to one vote, in person or by proxy, for each share of such stock standing in his name on the books of the Corporation. Except as hereinbefore expressly provided in this Article 5 and as may otherwise be required by law, the holders of the Preferred Stock shall have no power to vote and shall be entitled to no notice of any meeting of the shareholders of the Corporation. As to any matter upon which holders of the Preferred Stock are entitled to vote as hereinbefore expressly provided, each holder of $100 Preferred Stock shall be entitled to one vote, in person or by proxy, for each share of such stock standing in his name on the books of the Corporation, and each holder of $25 Preferred Stock shall be entitled to one-quarter (1/4) vote, in person or by proxy, for each share of such stock standing in his name on the books of the Corporation. As to any matters requiring or permitting or otherwise calling for or involvi ng the presence of, or the consent or vote of, or any other action by, a particular number or percentage or fraction or portion of the total number of shares of Preferred Stock outstanding, or of the outstanding Preferred Stock, or of the total number of shares of Preferred Stock present in person or by proxy, or of the Preferred Stock present in person or by proxy, for purposes of making such calculation and determination, each share of $100 Preferred Stock shall be considered and counted as one share and each share of $25 Preferred Stock shall be considered and counted as one-quarter (1/4) of a share.
(F) In the event of any voluntary liquidation, dissolution, or winding up of the Corporation, the Preferred Stock shall have a preference over the Common Stock until an amount equal to the then current redemption price shall have been paid. In the event of any involuntary liquidation, dissolution or winding up of the Corporation, which shall include any such liquidation, dissolution or winding up which may arise out of or result from the condemnation or purchase of all or a major portion of the properties of the Corporation, by (i) the United States Government or any authority, agency, or instrumentality thereof, (ii) a state of the United States or any political subdivision, authority, agency or instrumentality thereof, or (iii) a district, cooperative or other association or entity not organized for profit, the Preferred Stock shall also have a preference over the Common Stock until the full par value thereof and an amount equal to all accumulated and unpaid dividends thereon shall h ave been paid by dividends or distribution.
(G) Upon the affirmative vote of a majority of the shares of the issued and outstanding Common Stock at any annual meeting, or any special meeting called for that purpose, the Corporation may at any time redeem all of any series of the Preferred Stock or may from time to time redeem any part thereof, by paying in cash, as to the First Series Preferred Stock, a redemption price of $104.25 per share, as to the Second Series Preferred Stock, a redemption price of $104.21 per share, as to the Third Series Preferred Stock, a redemption price of $104.06 per share, as to the Fourth Series Preferred Stock, a redemption price of $104.18 per share, as to the Fifth Series Preferred Stock, a redemption price of $103.00 per share, as to the Sixth Series Preferred Stock, a redemption price of $102.92 per share, as to the Eighth Series Preferred Stock, a redemption price of $107.70 per share if redeemed on or prior to April 1, 1981, $105.74 per share if redeemed subsequent to April 1, 1981 but on or p rior to April 1, 1986, and $103.78 per share if redeemed subsequent to April 1, 1986, as to the Ninth Series Preferred Stock, a redemption price of $107.04 per share if redeemed on or prior to January 1, 1982, $105.20 per share if redeemed subsequent to January 1, 1982 but on or prior to January 1, 1987, and $103.36 per share if redeemed subsequent to January 1, 1987, and as to the Series H Preferred Stock, a redemption price of $25.00 per share (except that no share of the Series H Preferred Stock shall be redeemed on or before October 1, 1997), and as to each additional series such redemption price or prices, with such restrictions or limitations, if any, on redemption or refunding, as shall be fixed in and by the resolution or resolutions of the Board of Directors of the Corporation providing for such series; plus, in each case where applicable, an amount equivalent to the accumulated and unpaid dividends, if any, to the date fixed for redemption. Notwithstanding any other provision herein to the contrar y, no redemption shall be made by the Corporation if such redemption is not permitted under the Act. Notice of the intention of the Corporation to redeem all or any part of the Preferred Stock shall be mailed not less than thirty (30) days nor more than sixty (60) days before the date fixed for redemption to each holder of record of Preferred Stock to be redeemed, at his post-office address as shown by the Corporation's records, and not less than thirty (30) days' notice nor more than sixty (60) days' notice of such redemption may be published in such manner as may be prescribed by resolution of the Board of Directors of the Corporation; and, in the event of such publication, no defect in the mailing of such notice shall affect the validity of the proceedings for the redemption of any shares of Preferred Stock so to be redeemed. Contemporaneously with the mailing or publication of such notice as aforesaid or at any time thereafter prior to the date fixed for redemption, the Corporation may deposit the aggr egate redemption price (or the portion thereof not already paid in the redemption of such Preferred Stock so to be redeemed) with any bank or trust company in the City of New York, New York, or in the City of New Orleans, Louisiana, named in such notice, payable to the order of the record holders of the Preferred Stock so to be redeemed, as the case may be, on the endorsement and surrender of their certificates, and thereupon said holders shall cease to be stockholders with respect to such shares; and from and after the making of such deposit such holders shall have no interest in or claim against the Corporation with respect to said shares, but shall be entitled only to receive such moneys from said bank or trust company, with interest, if any, allowed by such bank or trust company on such moneys deposited as in this paragraph provided, on endorsement and surrender of their certificates as aforesaid. Any moneys so deposited, plus interest thereon, if any, remaining unclaimed at the end of six years from th e date fixed for redemption, if thereafter requested by resolution of the Board of Directors, shall be repaid to the Corporation, and in the event of such repayment to the Corporation, such holders of record of the shares so redeemed as shall not have made claim against such moneys prior to such repayment to the Corporation, shall be deemed to be unsecured creditors of the Corporation for an amount, without interest, equivalent to the amount deposited, plus interest thereon, if any, allowed by such bank or trust company, as above stated, for the redemption of such shares and so paid to the Corporation. Shares of the Preferred Stock which have been redeemed shall not be reissued. If less than all of the shares of any series of the Preferred Stock are to be redeemed, the shares thereof to be redeemed shall be selected by lot, in such manner as the Board of Directors of the Corporation shall determine, by an independent bank or trust company selected for that purpose by the Board of Directors of the Corporati on. Nothing herein contained shall limit any legal right of the Corporation to purchase or otherwise acquire any shares of the Preferred Stock; provided, however, that, so long as any shares of the Preferred Stock are outstanding, the Corporation shall not (i) make any payment, or set aside funds for payment, into any sinking fund for the purchase or redemption of any shares of the Preferred Stock, or (ii) redeem, purchase or otherwise acquire less then all of the shares of the Preferred Stock, if, at the time of such payment or setting aside of funds for payment into such sinking fund, or of such redemption, purchase or other acquisition, dividends payable on any of the Preferred Stock shall be in default in whole or in part, unless, prior to or concurrently with such payment or setting aside of funds for payment into such sinking fund, and/or such redemption, purchase or other acquisition, as the case may be, all such defaults shall be cured or unless such payment or setting aside of funds for payment int o such sinking fund, and/or such redemption, purchase or other acquisition, as the case may be, shall have been ordered, approved or permitted under the Public Utility Holding Company Act of 1935. Any shares of the Preferred Stock so redeemed, purchased or acquired shall be retired and canceled.
(H) For the purposes of this paragraph (H) and subparagraph (3) of paragraph (D) the term "Common Stock Equity" shall mean the aggregate of the par value of, or stated capital represented by, the outstanding shares (other than shares owned by the Corporation) of stock ranking junior to the Preferred Stock as to dividends and assets, of the premium on such junior stock and of the surplus (including earned surplus, capital surplus and surplus invested in plant) of the Corporation less (unless the amounts or items are being amortized or are being provided for by reserves), (1) any amounts recorded on the books of the Corporation for utility plant and other plant in excess of the original cost thereof, (2) unamortized debt discount and expense, capital stock discount and expense and any other intangible items set forth on the asset side of the balance sheet as a result of accounting convention, (3) the excess, if any, of the aggregate amount payable on involuntary liquidation, dis solution or winding up of the affairs of the Corporation upon all outstanding Preferred Stock over the aggregate par or stated value thereof and any premiums thereon and (4) the excess, if any, for the period beginning with January 1, 1953 to the end of a month within ninety (90) days preceding the date as of which Common Stock Equity is determined, of the cumulative amount computed under requirements contained in the Corporation's mortgage indentures relating to minimum depreciation provisions (this cumulative amount being the aggregate of the largest amounts separately computed for entire periods of differing co-existing mortgage indenture requirements), over the amount charged by the Corporation and Louisiana Power & Light Company, a Florida corporation, on their books for depreciation during such period, including the final fraction of a year. For the purpose of this paragraph (H): (i) the term "total capitalization" shall mean the sum or the Common Stock Equity plus item (3) in this parag raph (H) and the stated capital applicable to, and any premium on, outstanding stock of the Corporation not included in Common Stock Equity, and the principal amount of all outstanding debt of the Corporation maturing more than twelve months after the date of the determination of the total capitalization; and (ii) the term "dividends on Common Stock" shall embrace dividends on Common Stock (other than dividends payable only in shares of Common Stock), distributions on, and purchases or other acquisitions for value of, any Common Stock of the Corporation or other stock, if any, subordinate to its Preferred Stock as to dividends or other distributions. So long as any shares of the Preferred Stock are outstanding, the Corporation shall not declare or pay any dividends on the Common Stock, except as follows:
(a) If and so long as the Common Stock Equity at the end of the calendar month immediately preceding the date on which a dividend on Common Stock is declared is, or as a result of such dividend would become, less than 20% of total capitalization, the Corporation shall not declare such dividends in an amount which, together with all other dividends on Common Stock paid by the Corporation and Louisiana Power & Light Company, a Florida corporation, within the year ending with and including the date on which such dividend is payable, exceeds 50% of the net income of the Corporation and Louisiana Power & Light Company, a Florida corporation, available for dividends on Common Stock for the twelve full calendar months immediately preceding the month in which such dividends are declared, except in an amount not exceeding the aggregate of dividends on Common Stock which under the restrictions set forth above in this subparagraph (a) could have been, and have not been, declared;
(b) If and so long as the Common Stock Equity at the end of the calendar month immediately preceding the date on which a dividend on Common Stock is declared is, or as a result of such dividend would become, less than 25% but not less than 20% of total capitalization, the Corporation shall not declare dividends on the Common Stock in an amount which, together with all other dividends on Common Stock paid by the Corporation and Louisiana Power & Light Company, a Florida corporation, within the year ending with and including the date on which such dividend is payable, exceeds 75% of the net income of the Corporation and Louisiana Power & Light Company, a Florida corporation, available for dividends on Common Stock for the twelve full calendar months immediately preceding the month in which such dividends are declared, except in an amount not exceeding the aggregate of dividends on Common Stock which under the restrictions set forth above in subparagraph (a) and in this subparagrap h (b) could have been, and have not been, declared; and
(c) At any time when the Common Stock Equity is 25% or more of total capitalization, the Corporation may not declare dividends on shares of the Common Stock which would reduce the Common Stock Equity below 25% of total capitalization, except to the extent provided in subparagraphs (a) and (b) above.
So long as any of the Second through the Sixth or the Eighth or the Ninth Series Preferred Stock or the Series H Preferred Stock remains outstanding, or there remains outstanding any additional series of Preferred Stock with respect to which the resolution or resolutions of the Board of Directors of the Corporation providing for same makes this sentence applicable, at any time when the aggregate of all amounts credited subsequent to January 1, 1953 to the depreciation reserve account of the Corporation and Louisiana Power & Light Company, a Florida corporation, through charges to operating revenue deductions or otherwise on the books of the Corporation and Louisiana Power & Light Company, a Florida corporation (other than transfers out of the balance of surplus as of December 31, 1952), shall be less than the amount computed as provided in clause (aa) below, under requirements contained in the Corporation's mortgage indentures, then for the purposes of subparagraphs (a) and (b) abo ve, in determining the earnings available for Common Stock dividends during any twelve-month period, the amount to be provided for depreciation in that period shall be (aa) the greater of the cumulative amount charged to depreciation expense on the books of the Corporation and Louisiana Power & Light Company, a Florida corporation, or the cumulative amount computed under requirements contained in the Corporation's mortgage indentures relating to minimum depreciation provisions (the latter cumulative amount being the aggregate of the largest amounts separately computed for entire periods of differing coexisting mortgage indenture requirements) for the period from January 1, 1953 to and including said twelve-month period, less (bb) the greater of the cumulative amount charged to depreciation expense on the books of the Corporation and Louisiana Power & Light Company, a Florida corporation, or the cumulative amount computed under requirements contained in the Corporation's mortgage indentures relating t o minimum depreciation provisions (the latter cumulative amount being the aggregate of the largest amounts separately computed for entire periods of differing coexisting mortgage indenture requirements) from January 1, 1953 up to but excluding said twelve-month period; provided that in the event any company other than Louisiana Power & Light Company, a Florida corporation, is merged into the Corporation, the "cumulative amount computed under requirements contained in the Corporation's mortgage indentures relating to minimum depreciation provisions" referred to above shall be computed without regard, for the period prior to the merger, of property acquired in the merger, and the "cumulative amount charged to depreciation expense on the books of the Corporation and Louisiana Power & Light Company, a Florida corporation," shall be exclusive of amounts provided for such property prior to the merger.
(I) Dividends may be paid upon the Common Stock only when (i) dividends have been paid or declared and funds set apart for the payment of dividends as aforesaid on the Preferred Stock from the dates after which dividends thereon became cumulative, to the beginning of the period then current, with respect to which such dividends on the Preferred Stock are usually declared, and (ii) all payments have been made or funds have been set aside for payments then or theretofore due under the terms of sinking fund requirements (if any) for the purchase or redemption of shares of the Preferred Stock, but whenever (x) there shall have been paid or declared and funds shall have been set apart for the payment of all such dividends upon the Preferred Stock as aforesaid, and (y) all payments shall have been made or funds shall have been set aside for all payments then or theretofore due under the terms of sinking fund requirements (if any) for the purchase or redemption of shares of the Preferred Stock , then, subject to the limitations above set forth, dividends upon the Common Stock may be declared payable then or thereafter, out of any net earnings or surplus of assets over liabilities, including capital, then remaining. After the payment of the limited dividends and/or shares in distribution of assets to which the Preferred Stock is expressly entitled in preference to the Common Stock, in accordance with the provisions hereinabove set forth, the Common Stock alone (subject to the rights of any class of stock hereafter authorized) shall receive all further dividends and shares in distribution.
(J) Subject to the limitations hereinabove set forth the Corporation from time to time may resell any of its own stock, purchased or otherwise acquired by it as hereinafter provided for, at such price as may be fixed by its Board of Directors.
(K) Subject to the limitations hereinabove set forth the Corporation in order to acquire funds with which to redeem any outstanding Preferred Stock, may issue and sell stock of any class then authorized but unissued, bonds, notes, evidences of indebtedness, or other securities.
(L) Subject to the limitations hereinabove set forth the Board of Directors of the Corporation may at any time authorize the conversion or exchange of the whole or any particular share of the outstanding Preferred Stock, with the consent of the holder thereof, into or for stock of any other class at the time of such consent authorized but unissued and may fix the terms and conditions upon which such conversion or exchange may be made; provided that without the consent of the holders of record of two-thirds of the shares of Common Stock outstanding given at a meeting of the holders of the Common Stock called and held as provided by the By-Laws or given in writing without a meeting, the Board of Directors shall not authorize the conversion or exchange of any Preferred Stock into or for Common Stock or authorize the conversion or exchange of any Preferred Stock into or for preferred stock of any other class, if by such conversion or exchange the amount which the holders of the shares of st ock so converted or exchanged would be entitled to receive either as dividends or shares in distribution of assets in preference to the Common Stock would be increased.
(M) A consolidation, merger, or amalgamation of the Corporation with or into any other corporation or corporations shall not be deemed a distribution of assets of the Corporation within the meaning of any provisions of these Articles of Incorporation.
(N) The consideration received by the Corporation from the sale of any additional stock without nominal or par value shall be entered in the Corporation's capital stock account.
(O) Subject to the limitations hereinabove set forth, upon the vote of a majority of all the directors of the Corporation and of a majority of the total number of shares of stock then issued and outstanding and entitled to vote (or if the vote of a larger number of shares is required or the holders of a class or series are entitled to vote as a class or series by the laws of the State of Texas, notwithstanding the above agreement of the shareholders of the Corporation to the contrary, then upon the vote of the larger number or class or series of shares so required), the Corporation may from time to time create or authorize one or more other classes of stock with such preferences, designations, rights, privileges, powers, restrictions, limitations and qualifications as may be determined by said vote, which may be the same as or different from the preferences, designations, rights, privileges, powers, restrictions, limitations and qualifications of the classes of stock of the Corporation then authorized. Any such vote authorizing the creation of a new class of stock may provide that all moneys payable by the Corporation with respect to any class of stock thereby authorized shall be paid in the money of any foreign country named therein or designated by the Board of Directors, pursuant to authority therein granted, at a fixed rate of exchange with the money of the United States of America therein stated or provided for and all such payments shall be made accordingly. Any such vote may authorize any shares of any class then authorized but unissued to be issued as shares of such new class or classes.
(P) Subject to the limitations hereinabove set forth, the $100 Preferred Stock or the $25 Preferred Stock or the Common Stock or any of said classes of stock may be increased at any time upon vote of the holders of a majority of the total number of shares of the Corporation then issued and outstanding and entitled to vote thereon, irrespective of class.
(Q) If any provision in this Article 5 shall be in conflict or inconsistent with any other provision of the Articles of Incorporation of the Corporation, the provisions of this Article 5 shall prevail and govern.
ARTICLE 6
The street address of the Corporation's initial registered office is Parkwood II Building, Suite 500, 10055 Grogans Mill Road, The Woodlands, Texas 77380-1048, and the name of its initial registered agent at that address is Reginald G. Rice.
ARTICLE 7
The number of directors constituting the initial Board of Directors who are to serve as directors until the first annual meeting of shareholders or until their successors be elected and qualified is three. The names and addresses of the initial directors are:
NAME |
ADDRESS |
Michael D. Bakewell |
10055 Grogans Mill Road |
Robert A. Malone |
10055 Grogans Mill Road |
William M. Mohl |
10055 Grogans Mill Road |
The Board of Directors shall consist of such number of directors as shall be determined from time to time as provided in this Article 7. Directors shall be elected at each annual meeting of shareholders and, subject to the provisions of Article 5 hereof, each director so elected shall hold office until the next annual meeting of shareholders and until his successor is elected and qualified. The shareholders or the Board of Directors shall have the power from time to time to fix the number of directors of the Corporation, provided that the number so fixed shall not be less than three (3) and not more than fifteen (15). If the number of directors is increased, the additional directors may, to the extent permitted by law and subject to the provisions of Article 5 hereof, be elected by the shareholders or by a majority of the directors in office at the time of the increase, or, if not so elected prior to the next annual meeting of shareholders, such additional directors shall be elected at such annual meeting. If the number of directors is decreased and the decrease does not exceed the number of vacancies in the Board then existing, then, subject to the provisions of Article 5 hereof, the shareholders or the Board of Directors may provide that it shall become effective forthwith; and to the extent that the decrease does exceed such number of vacancies, the shareholders or the Board of Directors may provide that it shall not become effective until the next election of directors by the shareholders. If, after the number of directors shall have been fixed by such resolution, such resolution shall be ineffective or shall cease to be in effect for any cause other than by being superseded by another such resolution, the number of directors shall be that number specified in the latest of such resolutions, whether or not such resolution continues in effect.
ARTICLE 8
For the regulation of the business and for the conduct of the affairs of the Corporation, and to create, divide, limit and regulate the powers of the Corporation, the directors and the shareholders, provision is made as follows:
(a) General authority is hereby conferred upon the Board of Directors of the Corporation to fix the consideration for which shares of stock of the Corporation without nominal or par value may be issued and disposed of, and the shares of stock of the Corporation without nominal or par value, whether authorized by these Articles of Incorporation or by subsequent increase of the authorized number of shares of stock or by amendment of these Articles of Incorporation by consolidation or merger or otherwise, and/or any securities convertible into stock of the Corporation without nominal or par value may be issued and disposed of by the Board of Directors for such consideration and on such terms and in such manner as may be fixed from time to time by the Board of Directors.
(b) If now or hereafter permitted by Texas law, the issue of the whole, or any part determined by the Board of Directors, of the shares of stock of the Corporation as partly paid, and subject to calls thereon until the whole thereof shall have been paid, is hereby authorized.
(c) The Board of Directors shall have power to authorize the payment of compensation to the directors for services to the Corporation, including fees for attendance at meetings of the Board of Directors or any committee thereof and to determine the amount of such compensation and fees.
(d) The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost or destroyed, and the Board of Directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representative, to give bond in such sum as they may direct as indemnity against any claim that may be made against the Corporation, its officers, employees or agents by reason thereof; a new certificate may be issued without requiring any bond when, in the judgment of the directors, it is proper so to do.
If the Corporation shall neglect or refuse to issue such a new certificate and it shall appear that the owner thereof has applied to the Corporation for a new certificate in place thereof and has made due proof of the loss or destruction thereof and has given such notice of his application for such new certificate in such newspaper of general circulation, published in the State of Texas, as reasonably should be approved by the Board of Directors, and in such other newspaper as may be required by the Board of Directors, and has tendered to the Corporation adequate security to indemnify the Corporation, its officers, employees or agents, and any person other than such applicant who shall thereafter appear to be the lawful owner of such allegedly lost or destroyed certificate against damage, loss or expense because of the issuance of such new certificate, and the effect thereof as herein provided, then, unless there is adequate cause why such new certificate shall not be issued, the Corporati on, upon the receipt of said indemnity, shall issue a new certificate of stock in place of such lost or destroyed certificate. In the event that the Corporation shall nevertheless refuse to issue a new certificate as aforesaid, the applicant may then petition any court of competent jurisdiction for relief against the failure of the Corporation to perform its obligations hereunder. In the event that the Corporation shall issue such new certificate, any person who shall thereafter claim any rights under the certificate in place of which such new certificate is issued, whether such new certificate is issued pursuant to the judgment or decree of such court or voluntarily by the Corporation after the publication of notice and the receipt of proof and indemnity as aforesaid, shall have recourse to such indemnity and the Corporation shall be discharged from all liability to such person by reason of such certificate and the shares represented thereby.
(e) No shareholder shall have any right to inspect any account, book, or document of the Corporation, except as conferred by statute or authorized by the directors.
(f) No holder of any stock of the Corporation shall be entitled as of right to purchase or subscribe for any part of any stock of the Corporation authorized by these Articles of Incorporation or of any additional stock of any class to be issued by reason of any increase of the authorized capital stock of the Corporation or of any bonds, certificates of indebtedness, debentures or other securities convertible into stock of the Corporation, but any stock authorized by these Articles of Incorporation or any such additional authorized issue of new stock or of securities convertible into stock may be issued and disposed of by the Board of Directors to such persons, firms, corporations or associations for such consideration and upon such terms and in such manner as the Board of Directors may in their discretion determine, without offering any thereof, on the same terms or on any terms, to the shareholders then of record or to any class of shareholders.
(g) A director of the Corporation shall not be disqualified by his office from dealing or contracting with the Corporation either as a vendor, purchaser or otherwise, nor shall any transaction or contract of the Corporation be void or voidable by reason of the fact that any director or any firm of which any director is a member or any corporation of which any director is a shareholder or director, is in any way interested in such transaction or contract, provided that such transaction or contract is or shall be authorized, ratified or approved either (1) by a vote of a majority of a quorum of the Board of Directors, without counting in such majority or quorum any director so interested or member of a firm so interested or a shareholder or director of a corporation so interested, or (2) by vote at a shareholders' meeting of the holders of record of a majority of all the outstanding shares of stock of the Corporation entitled to vote or by writing or writings signed by a majority of such holders; nor shall any director be liable to account to the Corporation for any profits realized by and from or through any such transaction or contract of the Corporation, authorized, ratified or approved as aforesaid, by reason of the fact that he or any firm of which he is a member or any corporation of which is a shareholder or director was interested in such transaction or contract. Nothing herein contained shall create any liability in the events above described or prevent the authorization, ratification, or approval of such contracts in any other manner provided by law.
(h) Any director may be removed and his place filled at any meeting of the shareholders by the vote of a majority of the outstanding stock of the Corporation entitled to vote. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled as provided in the By-Laws.
(i) Any property of the Corporation not essential to the conduct of its corporate business and purposes may be sold, leased, exchanged or otherwise disposed of by authority of its Board of Directors, and the Corporation may sell, lease, exchange or otherwise dispose of all of its property and franchises or any of its property, franchises, corporate rights or privileges essential to the conduct of its corporate business and purposes, upon the consent of and for such consideration and upon such terms as may be authorized by a majority of all of the directors and the holders of a majority of the outstanding shares of stock entitled to vote (or, if the consent or vote of a larger number or different proportion of the directors and/or shares is required by the laws of the State of Texas notwithstanding the above agreement of the shareholders of the Corporation to the contrary, then upon the consent or vote of the larger number or different proportion of the directors and/or shares so require d) expressed in writing or by vote at a meeting of shareholders duly called and held as provided by law or in the manner provided by the By-Laws of the Corporation, if not inconsistent therewith; and at no time shall any of the plants, properties, easements, franchises (other than corporate franchises) or securities then owned by the Corporation be deemed to be property, franchises, corporate rights or privileges essential to the conduct of the corporate business and purposes of the Corporation.
(j) Upon the written consent or the vote of the holders of record of a majority of the shares of stock of the Corporation then outstanding and entitled to vote, amendments of these Articles of Incorporation may be made if authorized at the time of making such amendments by the laws of the State of Texas.
(k) No director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for an act or omission occurring in the director's capacity as a director, except to the extent the statutes of the State of Texas expressly provide that the director's liability may not be eliminated or limited. Any repeal or amendment of this paragraph that increases the liability of a director shall be prospective only and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or amendment.
Exhibit 4(a)11
ENTERGY CORPORATION
AND
DEUTSCHE BANK TRUST COMPANY AMERICAS
as Trustee
SUPPLEMENTAL INDENTURE NO. 1
Dated as of December 20, 2005
THIS SUPPLEMENTAL INDENTURE No. 1 (this "Supplemental Indenture No. 1"), dated as of December 20, 2005, is between ENTERGY CORPORATION, a Delaware corporation (the "Company"), and DEUTSCHE BANK TRUST COMPANY AMERICAS, a banking corporation of the State of New York, as trustee (the "Trustee").
R E C I T A L S
WHEREAS, the Company has executed and delivered to the Trustee an Indenture dated as of December 1, 2002, between the Company and the Trustee (the "Base Indenture"), as supplemented by the Officer's Certificate, dated December 19, 2002, Officer's Certificate, dated March 27, 2003, the Officer's Certificate, dated March 27, 2003, Officer's Certificate, dated May 14, 2003, Officer's Certificate, dated September 24, 2003, Officer's Certificate, dated November 20, 2003, and Officer's Certificate dated November 20, 2003, and, together with this Supplemental Indenture No. 1, the "Indenture"), providing for the issuance from time to time of one or more series of the Securities;
WHEREAS, Section 1201(f) of the Base Indenture provides for the Company and the Trustee to enter into an indenture supplemental to the Base Indenture without the consent of any Holders to establish the forms or terms of Securities of any series as permitted by Section 201 and Section 301 of the Base Indenture;
WHEREAS, pursuant to Section 301 of the Base Indenture, the Company wishes to provide for the issuance of a new series of Securities to be known as its Senior Notes, Series A , initially due February 17, 2011 (the "Senior Notes"), the form and terms of such Senior Notes and the terms, provisions and conditions thereof to be set forth as provided in this Supplemental Indenture No. 1; and
WHEREAS, the Company has requested that the Trustee execute and deliver this Supplemental Indenture No. 1, and all requirements necessary to make this Supplemental Indenture No. 1 a valid, binding and enforceable instrument in accordance with its terms, and to make the Senior Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid, binding and enforceable obligations of the Company, have been done and performed, and the execution and delivery of this Supplemental Indenture No. 1 has been duly authorized in all respects;
NOW, THEREFORE, in consideration of the covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTLICLE 1
Definitions
"Accounting Event" means the receipt, at any time prior to the earlier of the date of a Successful Remarketing and the Purchase Contract Settlement Date, by the audit committee of the Board of Directors of a written report in accordance with Statement on Auditing Standards ("SAS") No. 97, "Amendment to SAS No. 50 - - Reports on the Application of Accounting Principles", from the Company's independent auditors, provided at the request of management of the Company, to the effect that, as a result of a change in accounting rules after the date of original issuance of the Senior Notes, the Company must either (a) account for the Purchase Contracts as derivatives under SFAS 133 (or otherwise mark-to-market or measure the fair value of all or any portion of the Purchase Contracts with changes appearing in the Company's income statement) or (b) account for the Units using the if-converted method under SFAS 128, and, in each case, that such accounting treatment will cease to apply upon redemption of the Senior Notes.
"Applicable Ownership Interest in Senior Notes" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Applicable Remarketing Period" means any of (i) any Optional Remarketing Period for which the Company has elected to conduct an Optional Remarketing pursuant to Section 5.02 of the Purchase Contract and Pledge Agreement, or (ii) the Final Remarketing Period, as the context requires.
"Applicable Principal Amount" means, on any date, the aggregate principal amount of the Senior Notes underlying the Applicable Ownership Interests in Senior Notes that are components of Corporate Units outstanding on such date.
"Beneficial Owner" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Board of Directors" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Business Day" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Collateral Account" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Common Equity" has the meaning set forth in Section 7(b).
"Corporate Unit" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Coupon Rate" has the meaning set forth in Section 2.05(a).
"Depositary" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Depositary Participant" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Final Remarketing Period" means the period beginning February 2, 2009 and ending February 11, 2009.
"Global Senior Notes" has the meaning set forth in Section 2.04.
"Interest Payment Date" means a Quarterly Interest Payment Date or a Semiannual Interest Payment Date.
"Interest Period" means, with respect to any Interest Payment Date, the period from and including the later of the immediately preceding Interest Payment Date or December 20, 2005 to, but excluding, such Interest Payment Date.
"Maturity Date" has the meaning set forth in Section 2.02.
"Net Available Cash" has the meaning set forth in Section 7(b).
"Optional Remarketing Period" means (i) the period beginning on, and including, November 3, 2008 and ending on, and including, November 13, 2008 and (ii) unless a Successful Optional Remarketing has occurred, the period beginning on, and including, December 1, 2008 and ending on, and including, December 11, 2008, in each case during which the Company may elect for an Optional Remarketing to occur pursuant to Section 5.02 of the Purchase Contract and Pledge Agreement.
"Pledged Applicable Ownership Interests in Senior Notes" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Preferred Equity" has the meaning set forth in Section 7(b).
"Primary Treasury Dealer" means a primary U.S. government securities dealer.
"Principal Utility Subsidiary" has the meaning set forth in Section 7(b).
"Purchase Contract and Pledge Agreement" means the Purchase Contract and Pledge Agreement, dated as of December 20, 2005, among the Company, The Bank of New York, as Purchase Contract Agent and attorney-in-fact for Holders of the Purchase Contracts, and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary, as amended from time to time.
"Purchase Contract Settlement Date" means February 17, 2009.
"Put Price" has the meaning set forth in Section 10.05(a).
"Put Right" has the meaning set forth in Section 10.05(a).
"Quarterly Interest Payment Date" has the meaning set forth in Section 2.05(b)(i).
"Quotation Agent" means any primary U.S. government securities dealer selected by the Company.
"Record Date" means, with respect to any Interest Payment Date, the first day of the calendar month in which such Interest Payment Date falls (whether or not a Business Day).
"Redemption Amount" means, for each Senior Note, an amount equal to the product of the principal amount of such Senior Note and a fraction, the numerator of which is the Treasury Portfolio Purchase Price, as defined in clause (i) of the definition thereof, and the denominator of which is the Applicable Principal Amount on the Special Event Redemption Date; provided that in no event shall the Redemption Amount for any Senior Note be less than the principal amount of such Senior Note.
"Remarketing Date" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Redemption Price" shall mean, for each Senior Note, the Redemption Amount plus any accrued and unpaid interest on such Senior Note to, but excluding, the Special Event Redemption Date.
"Remarketed Senior Notes" has the meaning set forth in the Remarketing Agreement.
"Remarketing Agent" means Citigroup Global Markets Inc., or any successor thereto or replacement Remarketing Agent appointed by the Company pursuant to the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement, dated as of December 20, 2005, among the Company, the Remarketing Agent and The Bank of New York, as Purchase Contract Agent, as amended from time to time.
"Remarketing Fee" has the meaning set forth in the Remarketing Agreement.
"Remarketing Per Senior Note Price" means the Treasury Portfolio Purchase Price divided by the number of Senior Notes held as components of Corporate Units.
"Remarketing Price" means (i) in the case of an Optional Remarketing, 100% of the Treasury Portfolio Purchase Price (including, in the case of an Optional Remarketing occurring between December 1, 2008 and December 11, 2008, accrued and unpaid interest (prior to any reset of the interest rate on the Senior Notes) to the Remarketing Settlement Date) plus the Separate Senior Notes Purchase Price (if any) and (ii) in the case of a Final Remarketing, 100% of the aggregate principal amount of Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes and Separate Senior Notes to be remarketed in such Final Remarketing.
"Remarketing Settlement Date" means (a) in the case of a Successful Optional Remarketing occurring during the Optional Remarketing Period from November 3, 2008 to November 13, 2008, November 17, 2008, (b) in the case of a Successful Optional Remarketing occurring during the Optional Remarketing Period from December 1, 2008 to December 11, 2008, the third Business Day following the Remarketing Date on which such Successful Optional Remarketing occurs, or (c), in the case of a Remarketing during the Final Remarketing Period, February 17, 2009.
"Reset Rate" means the rate per annum, rounded to the nearest one-thousandth (0.001) of one percent per annum, as determined by the Remarketing Agent in consultation with the Company, that the Senior Notes should bear in order for the Remarketed Senior Notes to have an aggregate market value at least equal to the Remarketing Price and that, in the sole discretion of the Remarketing Agent, will enable it to remarket all of the Remarketed Senior Notes at the Remarketing Price in such Remarketing, provided that, if no Successful Remarketing occurs, the interest rate payable on the Senior Notes shall continue to be the Coupon Rate, and provided further that in no event shall the Reset Rate exceed the maximum rate, if any, permitted by applicable law.
"Securities" has the meaning set forth in the Base Indenture.
"Semiannual Interest Payment Date" has the meaning set forth in Section 2.05(b)(ii).
"Separate Senior Notes" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Separate Senior Notes Purchase Price" means, for any Optional Remarketing, the amount in cash equal to the product of the Remarketing Per Senior Note Price multiplied by the number of Separate Senior Notes remarketed in such Optional Remarketing.
"Significant Subsidiary" has the meaning set forth in Section 7(b).
"Special Event" shall mean either a Tax Event or an Accounting Event.
"Special Event Redemption" means the redemption of the Senior Notes pursuant to the terms of Article 3 hereof following the occurrence of a Special Event.
"Special Event Redemption Date" has the meaning set forth in Section 3.01.
"Stock Disposition" has the meaning set forth in Section 7(b).
"Tax Event" means the receipt by the Company of an opinion of counsel, rendered by a law firm having a recognized national tax practice, at any time prior to the earlier of the date of a Successful Remarketing and the Purchase Contract Settlement Date, to the effect that, as a result of any amendment to, change in or announced proposed change in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative decision, pronouncement, judicial decision or action interpreting or applying such laws or regulations, which amendment or change is effective or which proposed change, pronouncement, action or decision is announced on or after the date of original issuance of the Senior Notes, there is more than an insubstantial increase in the risk that interest payable by the Company on the Senior Notes is not, or within 90 days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes.
"Termination Event" has the meaning set forth in the Purchase Contract and Pledge Agreement.
"Treasury Portfolio" means a portfolio of (1) U.S. treasury securities (or principal or interest strips thereof) that mature on February 15, 2009 in an aggregate amount equal to the Pledged Applicable Ownership Interests in Senior Notes, and (2) (x) in the case of a Successful Optional Remarketing, for the scheduled Interest Payment Date on the Senior Notes that occurs on the Purchase Contract Settlement Date, U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to the Purchase Contract Settlement Date in an aggregate amount equal to the aggregate interest payment (assuming no reset of the interest rate) that would have been due on the Purchase Contract Settlement Date on the Pledged Applicable Ownership Interests in Senior Notes, and (y) in the case of a Special Event Redemption, for each scheduled Interest Payment Date that occurs after the Special Event Redemption Date to and including the Purchase Contract Settlement Date, U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to the Business Day immediately preceding such scheduled Interest Payment Date in an aggregate amount equal to the aggregate interest payment (assuming no reset of the interest rate) that would have been due on such scheduled Interest Payment Date on the Applicable Ownership Interests in Senior Notes.
"Treasury Portfolio Purchase Price" means the lowest aggregate ask-side price quoted by a Primary Treasury Dealer to the Quotation Agent between 9:00 a.m. and 11:00 a.m. (New York City time) (i) in the case of a Special Event Redemption, on the third Business Day immediately preceding the Special Event Redemption Date for the purchase of the applicable Treasury Portfolio for settlement on the Special Event Redemption Date, and (ii) in the case of any Successful Optional Remarketing, on the Remarketing Date on which such Successful Optional Remarketing occurs for the purchase of the applicable Treasury Portfolio for settlement on the Remarketing Settlement Date.
"Treasury Unit" has the meaning set forth in the Purchase Contract and Pledge Agreement.
The terms "Company," "Trustee," "Indenture," "Base Indenture" and "Senior Notes" shall have the respective meanings set forth in the recitals to this Supplemental Indenture No. 1 and the paragraph preceding such recitals.
ARTLICLE 2
General Terms and Conditions of the Senior Notes
No service charge shall be made for any registration of transfer or exchange of the Senior Notes, but the Company may require payment from the holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith.
The Securities Registrar and Paying Agent for the Senior Notes shall initially be the Trustee.
The Senior Notes shall be issuable in denominations of $1,000 and integral multiples of $1,000 in excess thereof; provided, however, that upon the release by the Collateral Agent of Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes (other than any release of Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes in connection with (i) the creation of Treasury Units by Collateral Substitution, (ii) a Successful Remarketing, (iii) a Failed Final Remarketing, (iv) Cash Merger Early Settlement, (v) Early Settlement or (vi) Cash Settlement, in accordance with Section 3.13, Section 5.02(c), 5.02(a), Section 5.04, Section 5.07 or Section 5.02(b) of the Purchase Contract and Pledge Agreement, as the case may be), the Senior Notes shall be issuable in denominations of $50 and integral multiples of $50 in excess thereof, and the Company shall issue Senior Notes in any such denominations if requested by the Purchase Contract Agent on behalf of any Holder or Be neficial Owner.
(ii) After the Remarketing Settlement Date, if any, or, in the event no Successful Remarketing occurs, after the Purchase Contract Settlement Date, interest on the Senior Notes shall be payable semi-annually in arrears on February 17 and August 17 of each year (each, a "Semiannual Interest Payment Date"), commencing August 17, 2009 to the Person in whose name the relevant Senior Notes are registered at the close of business on the Record Date for such Interest Payment Date.
"(a) failure to pay interest, if any, on any Security of such series within 30 days after the same becomes due and payable; provided, however, that a valid extension of the interest payment period by the Company as contemplated in Section 312 of this Indenture shall not constitute a failure to pay interest for this purpose; or"
"(c) failure to perform or breach of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or breach of which is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of one or more series of Securities other than such series) for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee, or to the Company and the Trustee by the Holders of at least 33% in principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder, unless the Trustee, or the Trustee and the Holders of a principal amount of Securities of such series not less than the principal amount of Securities the Holders of which gave such notice, as the case may be, shall agree in writing to an extension of such period prior to its expiration; provided, however, that the Trustee, or the Trustee and the Holders of such principal amount of Securities of such series, as the case may be, shall be deemed to have agreed to an extension of such period if corrective action is initiated by the Company within such period and is being diligently pursued; or"
ARTLICLE 3
Redemption of the Senior Notes
ARTLICLE 4
Form of Senior Note
ARTLICLE 5
Original Issue of Senior Notes
ARTLICLE 6
Supplemental Indentures
ARTLICLE 7
Additional Covenants
So long as any Senior Notes remain Outstanding, the Company will comply with the following covenants in addition to those specified in Article Six of the Indenture:
"Stock Disposition" means, with respect to any Person, the issuance, sale, lease, transfer, conveyance or other disposition of (whether in one transaction or in a series of transactions) any Common Equity (or stock or other instruments convertible into Common Equity) of such Person.
"Common Equity" shall mean the stock, shares or other ownership interests in the issuer thereof howsoever evidenced (including, without limitation, limited liability company membership interests) that has ordinary voting power for the election of directors, managers or trustees (or other persons performing similar functions) of the issuer, as applicable, provided that Preferred Equity, even if it has such ordinary voting power, shall not be Common Equity.
"Preferred Equity" shall mean any stock, shares or other ownership interests in the issuer thereof howsoever evidenced (including, without limitation, limited liability company membership interests), whether with or without voting rights, that is entitled to dividends or distributions prior to the payment of dividends or distributions with respect to Common Equity.
"Principal Utility Subsidiary" means Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., System Energy Resources, Inc., or in each case, its successors and permitted assigns and any other Domestic Regulated Utility Subsidiary (i) the total assets (after intercompany eliminations) of which exceed 20% of total assets of the Company and the total assets of its subsidiaries or (ii) the net worth of which exceeds 20% of the Consolidated Net Worth of the Company and its subsidiaries, in each case as shown on the most recent audited consolidated balance sheet of the Company and its subsidiaries. In no event shall "Principal Utility Subsidiary "include any Domestic Regulated Utility Subsidiary that as of September 30, 2005, (i) had total assets (after intercompany eliminations) which were 5% or less of the Company's total assets and the total assets of its subsidiaries at such date or (ii) had a net worth which was 5% or less of the Consolida ted Net Worth of the Company and its subsidiaries at such date.
"Net Available Cash" from a Stock Disposition means cash payments received therefrom net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state and local taxes required to be paid or accrued as a liability under United States generally accepted accounting principles, as a result of such Stock Disposition.
For the purposes of this Supplemental Indenture No. 1, the definition of the "Significant Subsidiary" contained in Section 608 of the Base Indenture shall read as follows:
"Significant Subsidiary" means Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., System Energy Resources, Inc., or, in each case, its successors and permitted assigns and any other Domestic Regulated Utility Subsidiary: (i) the total assets (after intercompany eliminations) of which exceed 5% of total assets of the Company and its subsidiaries or (ii) the net worth of which exceeds 5% of the Consolidated Net Worth of the Company and its subsidiaries, in each case as shown on the most recent audited consolidated balance sheet of the Company and its subsidiaries. In no event shall "Significant Subsidiary" include any Domestic Regulated Utility Subsidiary that as of September 30, 2005, (i) had total assets (after intercompany eliminations) which were 5% or less of the total assets of the Company and its subsidiaries at such date or (ii) had a net worth which was 5% or less of the Consolidated Net Worth of the Company and its subsidiari es at such date.
So long as any Senior Notes remain Outstanding, each of the following events will constitute an "Event of Default" with respect to the Senior Notes in addition to those Events of Default specified in Section 801 of the Base Indenture:
ARTLICLE 9
Miscellaneous
ARTLICLE 10
Remarketing
ARTLICLE 11
Tax Treatment
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 1 to be duly executed, as of the day and year first written above.
ENTERGY CORPORATION
By: /s/ Steven C. McNeal
Name: Steven C. McNeal
Title: Vice President and Treasurer
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustee
By: /s/ Wanda Camacho
Name: Wanda Camacho
Title: Vice President
EXHIBIT A
[IF THIS SENIOR NOTE IS TO BE A GLOBAL NOTE, INSERT:]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY OR A NOMINEE OF THE DEPOSITORY TRUST COMPANY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY TO A NOMINEE OF THE DEPOSITORY TRUST COMPANY OR BY A NOMINEE OF THE DEPOSITORY TRUST COMPANY TO THE DEPOSITORY TRUST COMPANY OR ANOTHER NOMINEE OF THE DEPOSITORY TRUST COMPANY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
ENTERGY CORPORATION
Senior Note, Series A
CUSIP: ____________
ISIN: ______________
No. |
$ |
ENTERGY CORPORATION., a corporation organized and existing under the laws of Delaware (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, [Insert in certificated Senior Notes not part of Corporate Units - DOLLARS ($ )][Insert in Global Notes or certificated Senior Notes that are part of Corporate Units - the principal sum as set forth in the Schedule of Increases or Decreases In Senior Note attached hereto], on February 17, 2011 (such date, as it may be extended, is hereinafter referred to as the "Maturity Date"); provided that the Company may extend the Maturity Date in connection with a Successful Remarketing as provided in the within-mentioned Supplemental Indenture No. 1, but in no event to a date later than February 17, 2019, and to pay interest thereon from December 20, 2005 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, quarterly in arrears on February 17, May 17, August 17 and November 17 of each year (each, a "Quarterly Interest Payment Date"), commencing February 17, 2006 at the rate of 5.75% per annum through and including the day immediately preceding the Purchase Contract Settlement Date or, if earlier, the Remarketing Settlement Date, and thereafter semi-annually in arrears on February 17 and August 17 of each year (each, a "Semiannual Interest Payment Date"), commencing August 17, 2009, at the Reset Rate, or, if there has not been a Successful Remarketing prior to the Purchase Contract Settlement Date at the Coupon Rate, until the principal hereof is paid or duly provided for or made available for payment. This Security shall bear interest, to the extent permitted by law, on any overdue principal and interest at the Coupon Rate, unless a Successful Remarketing shall have occurred, in which case interest on such amounts shall accrue at the Reset Rate from and after the Remarketing Settlement Date, in each case, compounded quarterly through the Purchase Contract Settlement Date or, if earlier, the Remarketing Settlement Date, and compounded semi-annually thereafter. The Reset Rate, if any, shall be established pursuant to the terms of the Indenture and the Remarketing Agreement. The amount of interest payable for any full Interest Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of interest payable for any period shorter than a full Interest Period for which interest is computed will be computed on the basis of a 30-day month and, for any period less than a month, on the basis of the actual number of days elapsed per 30-day month. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Record Date for such Interest Payment Date.
Payment of the principal of and interest on this Security will be made at the office or agency of the Company maintained for that purpose in The Borough of Manhattan, The City of New York, which shall initially be the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Person entitled thereto at such address as shall appear in the Note Register or by wire transfer to an account appropriately designated by the Person entitled to payment by written notice given at least ten calendar days prior to the Interest Payment Date.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the within-mentioned Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
ENTERGY CORPORATION
By:
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Dated:
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Trustee
By:
Authorized Officer
REVERSE OF SENIOR NOTE
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series of Securities under an Indenture (the "Base Indenture"), dated as of December 1, 2002, between the Company and Deutsche Bank Trust Company, as Trustee (herein called the "Trustee", which term includes any successor trustee), as supplemented by seven Officer's Certificates and further supplemented by the Supplemental Indenture No. 1, dated as of December 20, 2005, between the Company and the Trustee (the "Supplemental Indenture No. 1" and, together with the Base Indenture so supplemented, the "Indenture"), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the holders of the Securities and of the terms upon which the Securities are, and are to be, authent icated and delivered. This Security is one of the series designated on the face hereof.
All terms used in this Security that are defined in the Indenture shall have the meaning assigned to them in the Indenture.
If a Special Event shall occur and be continuing, the Company may, at its option, redeem the Securities of this series in whole, but not in part, at any time prior to the earlier of the date of a Successful Remarketing and the Purchase Contract Settlement Date, at a price per Security of this series equal to the Redemption Price, payable on the date of redemption (the "Special Event Redemption Date") (a) to the Collateral Agent, in the case of Securities of this series that underlie the Applicable Ownership Interests in Securities of this series included in Corporate Units, which amount shall be applied by the Collateral Agent in accordance with the terms of the Purchase Contract and Pledge Agreement, and (b) to the holders of the separate Securities of this series, in the case of separate Securities of this series.
If the Company so elects to redeem the Securities of this series, the Company shall appoint the Quotation Agent to assist the Company in determining the Treasury Portfolio Purchase Price. Notice of any Special Event Redemption will be mailed by the Company (with a copy to the Trustee) at least 30 days before the Special Event Redemption Date to each Person in whose name the Securities of this series are registered at its registered address. In addition, the Company shall notify the Collateral Agent in writing that a Special Event has occurred and that the Company intends to redeem the Senior Notes on the Special Event Redemption Date.
Unless the Company defaults in the payment of the Redemption Price, on and after the Special Event Redemption Date, (a) interest shall cease to accrue on the Securities of this series, (b) the Securities of this series shall become due and payable at the Redemption Price, and (c) the Securities of this series shall be void and all rights of the holders in respect of the Securities of this series shall terminate and lapse (other than the right to receive the Redemption Price upon surrender of such Securities of this series but without interest on such Redemption Price). Following the notice of a Special Event Redemption, neither the Company nor the Trustee shall be required to register the transfer of or exchange the Securities of this series to be redeemed.
On or prior to the Special Event Redemption Date, the Company shall deposit with the Trustee immediately available funds in an amount sufficient to pay, on the Special Event Redemption Date, the aggregate Redemption Price for all outstanding Securities of this series. In exchange for any Securities of this series surrendered for redemption on or after the Special Event Redemption Date, the Trustee shall pay an amount equal to the Redemption Price (a) to the Collateral Agent, in the case of Securities of this series that underlie the Applicable Ownership Interests in Securities of this series included in Corporate Units, which amount shall be applied by the Collateral Agent in accordance with the terms of the Purchase Contract and Pledge Agreement, and (b) to the holders of the separate Securities of this series, in the case of separate Securities of this series.
. Except as set forth in Section 3.01 of the Supplemental Indenture No. 1, the Securities of this series shall not be redeemable by the Company prior to February 17, 2011. In connection with any Successful Remarketing, in the event the Company elects to extend the Maturity Date pursuant to Section 2.02 of the Supplemental Indenture No. 1, the Company may elect to add redemption dates falling after February 17, 2011 on which it may redeem the Senior Notes at its option, such election to be evidenced by an Officer's Certificate delivered to the Trustee on or prior to the Remarketing Settlement Date specifying the redemption dates and related redemption procedures consistent with the Base Indenture. Such election shall apply to all Securities of this series, whether or not participating in the Remarketing.
Pursuant to Section 10.05 of the Supplemental Indenture No. 1, if there has not been a Successful Remarketing prior to the end of the Final Remarketing Period, holders of Securities of this series will have the right (the "Put Right") to require the Company to purchase such Securities of this series on the Purchase Contract Settlement Date, in the case of Separate Senior Notes upon a notice to the Trustee on or prior to the second Business Day prior to the Purchase Contract Settlement Date, at a price per Security of this series to be purchased equal to the principal amount of the applicable Security of this series, plus accrued and unpaid interest to, but excluding, the Purchase Contract Settlement Date (the "Put Price").
The Securities of this series are not entitled to the benefit of any sinking fund and will not be subject to defeasance prior to February 17, 2011.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected. The Indenture contains provisions permitting the Holders of a majority in aggregate principal amount of the Securities of all series then Outstanding to waive compliance by the Company with certain provisions of the Indenture. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of a majority in aggregate principal amount of the Securities of all series at the time Outstanding in respect of which an Event of Default shall have occurred and be continuing shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of Securities of all series at the time Outstanding in respec t of which an Event of Default shall have occurred and be continuing a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the absolute owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof, except as provided for in Section 2.03 of Supplemental Indenture No. 1. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the holder surrendering the same.
The Company agrees, and by acceptance of a Corporate Unit or a Separate Senior Note, each holder of an Applicable Ownership Interest in Senior Notes and each holder of a Separate Senior Note will be deemed to have agreed (1) for United States federal, state and local income and franchise tax purposes to treat the acquisition of a Corporate Unit as the acquisition of an Applicable Ownership Interest in Senior Notes and the Purchase Contract constituting the Corporate Unit and (2) to treat the Applicable Ownership Interest in Senior Notes or Separate Senior Note, as the case may be, as indebtedness for United States federal, state and local income and franchise tax purposes.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PROVISIONS THEREOF TO THE EXTENT A DIFFERENT LAW WOULD GOVERN AS A RESULT.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Security on the books of the Company. The agent may substitute another to act for him or her.
Date:
Signature:
Signature Guarantee:
(Sign exactly as your name appears on the other side of this Security)
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Securities Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Note Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
[Insert in Global Notes or certificated Senior Notes that are part of Corporate Units]
SCHEDULE OF INCREASES OR DECREASES IN SENIOR NOTE
The initial principal amount of this Senior Note is $_,000,000. The following increases or decreases in a part of this Senior Note have been made:
Date |
Amount of |
Amount of |
Principal |
Signature of authorized officer of Trustee |
|
Exhibit 4(a)12
PURCHASE CONTRACT AND PLEDGE AGREEMENT
Dated as of December 20, 2005
among
Entergy Corporation
and
The Bank of New York
as Purchase Contract Agent,
and
JPMorgan Chase Bank, N.A.,
as Collateral Agent, Custodial Agent and Securities Intermediary
TIE SHEET
Section of Trust Indenture Act of 1939, as amended |
Section of Purchase Contract and Pledge Agreement |
310(a) | 7.08 |
310(b) | 7.9(d) and (g) |
310(c) | Inapplicable |
311(a) |
16.02(b) |
311(b) | 16.02(b) |
311(c) | Inapplicable |
312(a) | 16.02(a) |
312(b) | 16.02(b) |
313 | 16.04 |
314(a) | 16.05 |
314(b) | Inapplicable |
314(c) | 16.06 |
314(d) | Inapplicable |
314(e) | 1.02 |
314(f) | 16.01 |
315(a) | 7.01(a) |
315(b) & #9; ; 9; | 7.02 |
315(c) | 7.01(e) |
315(d)(1) | 7.01(b) |
315(d)(2) 9; & #9; ; | 7.01(b) |
315(d)(3) | 16.09 |
316(a)(1)(A) | 16.09 |
316(a)(1)(B) | 16.07 |
316(b) & #9; ; 9; | 6.01 |
316(c) | 16.02 |
317(a) | Inapplicable |
317(b) | Inapplicable |
318(a) | 16.01(b) |
_____________
* This Cross-Reference Table does not constitute part of the Purchase Contract and Pledge Agreement and shall not affect the interpretation of any of its terms or provisions.
PURCHASE CONTRACT AND PLEDGE AGREEMENT, dated as of December 20, 2005 among Entergy Corporation, a Delaware corporation (the "Company"), The Bank of New York, a New York banking corporation acting as purchase contract agent for, and as attorney-in-fact of, the Holders from time to time of the Units (in such capacities, together with its successors and assigns in such capacities, the "Purchase Contract Agent"), and JPMorgan Chase Bank, N.A., a national banking association organized under the laws of the United States of America as collateral agent hereunder for the benefit of the Company (in such capacity, together with its successors in such capacity, the "Collateral Agent"), as custodial agent (in such capacity, together with its successors in such capacity, the "Custodial Agent"), and as securities intermediary (as defined in Section 8-102(a)(14) of the UCC) with respect to the Collateral Account (in such capacity, together with its suc cessors in such capacity, the "Securities Intermediary").
RECITALS
WHEREAS, the Company has duly authorized the execution and delivery of this Agreement and the Certificates evidencing the Units;
WHEREAS, all things necessary to make the Purchase Contracts, when the Certificates are executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent, as provided in this Agreement, the valid obligations of the Company and the Holders, and to constitute these presents a valid agreement of the Company, in accordance with its terms, have been done;
WHEREAS, pursuant to the terms of this Agreement and the Purchase Contracts, the Holders of the Units have irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such Holders, among other things, to execute and deliver this Agreement on behalf of such Holders and to grant the Pledge provided herein of the Collateral to secure the Obligations.
NOW, THEREFORE, the parties hereto agree as follows:
"Accounting Event" has the meaning set forth in the Supplemental Indenture.
"Act" has the meaning, with respect to any Holder, set forth in Section 1.04.
"Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act, or any successor rule thereunder.
"Agreement" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more agreements supplemental hereto entered into pursuant to the applicable provisions hereof.
"Applicable Market Value" has the meaning set forth in Section 5.01(a).
"Applicable Ownership Interest in the Treasury Portfolio" shall mean, with respect to a Corporate Unit and the Treasury Portfolio following a Special Event Redemption or a Successful Optional Remarketing, (i) a 1/20, or 5%, undivided beneficial ownership interest in $1,000 face amount of U.S. treasury securities (or principal or interest strips thereof) included in such Treasury Portfolio that matures on February 15, 2009, and (ii) for each scheduled Interest Payment Date (as defined in the Supplemental Indenture) on the Senior Notes that occurs after the Special Event Redemption Date to and including the Purchase Contract Settlement Date, in the case of a Special Event Redemption, or for the scheduled Payment Date occurring on February 17, 2009, in the case of a Successful Optional Remarketing, a 0.071875% undivided beneficial ownership interest in $1,000 face amount of U.S. treasury securities (or principal or interest strips thereof) included in the Treasury Portfolio that mature on or prior to the Business Day immediately preceding such scheduled Interest Payment Date.
"Applicable Ownership Interest in Senior Notes" means, a 1/20, or 5%, undivided beneficial ownership interest in $1,000 principal amount of Senior Notes that is a component of a Corporate Unit, and "Applicable Ownership Interests in Senior Notes" means the aggregate of each Applicable Ownership Interest in Senior Notes that is a component of each Corporate Unit then Outstanding.
"Applicable Remarketing Period" means any of (i) any Optional Remarketing Period for which the Company has elected to conduct an Optional Remarketing pursuant to Section 5.02, or (ii) the Final Remarketing Period, as the context requires.
"Applicants" has the meaning set forth in Section 7.12(b).
"Authorized Officer" means the Company's Chief Executive Officer, its President or one of its Vice Presidents or its Treasurer or one of its Assistant Treasurers, or any other officer or agent of the Company duly authorized by the Board of Directors to act in respect of this Agreement.
"Bankruptcy Code" means Title 11 of the United States Code, or any other law of the United States that from time to time provides a uniform system of bankruptcy laws.
"Beneficial Owner" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry Interest as reflected on the books of the Depositary or on the books of a Person maintaining an account with such Depositary (directly as a Depositary Participant or as an indirect participant, in each case in accordance with the rules of such Depositary).
"Board of Directors" means the board of directors of the Company or a duly authorized committee of that board.
"Board Resolution" means one or more resolutions of the Board of Directors, a copy of which has been certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Purchase Contract Agent.
"Book-Entry Interest" means a beneficial interest in a Global Certificate, registered in the name of a Depositary or a nominee thereof, ownership and transfers of which shall be maintained and made through book entries by such Depositary as described in Section 3.06.
"Business Day" means any day other than a Saturday or Sunday or any other day on which banking institutions and trust companies in New York City, New York are authorized or required by law or executive order to remain closed.
"Cash" means any coin or currency of the United States as at the time shall be legal tender for payment of public and private debts.
"Cash Merger" has the meaning set forth in Section 5.04(b)(ii).
"Cash Merger Early Settlement" has the meaning set forth in Section 5.04(b)(ii).
"Cash Merger Early Settlement Date" has the meaning set forth in Section 5.04(b)(ii).
"Cash Settlement" has the meaning set forth in Section 5.02(b)(i).
"Certificate" means a Corporate Units Certificate or a Treasury Units Certificate, as the case may be.
"Closing Price" has the meaning set forth in Section 5.01(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the collective reference to:
"Collateral Account" means the securities account of JPMorgan Chase Bank, N.A., as Collateral Agent, maintained on the books of the Securities Intermediary and designated "JPMorgan Chase Bank, N.A., as Collateral Agent of Entergy Corporation, as pledgee of The Bank of New York, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders".
"Collateral Agent" means the Person named as "Collateral Agent" in the first paragraph of this Agreement until a successor Collateral Agent shall have become such pursuant to this Agreement, and thereafter "Collateral Agent" shall mean the Person who is then the Collateral Agent hereunder.
"collateral event of default" has the meaning set forth in Section 13.01(b).
"Collateral Substitution" means, prior to any Successful Optional Remarketing, (i) with respect to the Corporate Units, (x) if no Special Event Redemption has occurred, the substitution of the Pledged Applicable Ownership Interests in Senior Notes included in such Corporate Units with Treasury Securities in an aggregate principal amount at maturity equal to the aggregate principal amount of such Pledged Applicable Ownership Interests in Senior Notes, or (y) following a Special Event Redemption, the substitution of the Pledged Applicable Ownership Interests in the Treasury Portfolio included in such Corporate Units with Treasury Securities in an aggregate principal amount at maturity equal to such Pledged Applicable Ownership Interests in the Treasury Portfolio, or (ii) with respect to the Treasury Units, (x) if no Special Event Redemption has occurred, the substitution of the Pledged Treasury Securities included in such Treasury Units with Senior Notes in an aggregate principal amount equ al to the aggregate principal amount at stated maturity of the Pledged Treasury Securities, or (y) following a Special Event Redemption, the substitution of the Pledged Treasury Securities included in such Treasury Units with the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition thereof).
"Common Stock" means the common stock, $0.01 par value, of the Company.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Company" shall mean such successor.
"Constituent Person" has the meaning set forth in Section 5.04(b)(i).
"Contract Adjustment Payments" means the payments payable by the Company on the Payment Dates in respect of each Purchase Contract, at a rate per year of 1.875% of the Stated Amount per Purchase Contract.
"Corporate Trust Office" means the office of the Purchase Contract Agent at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at 101 Barclay Street, Floor 8W, New York, New York 10286 Attention: Corporate Trust Administration, or such other address as the Purchase Contract Agent may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Purchase Contract Agent (or such other address as such successor Purchase Contract Agent may designate from time to time by notice to the Holders, the Company, the Collateral Agent, the Custodial Agent and the Securities Intermediary).
"Corporate Unit" means the collective rights and obligations of a Holder of a Corporate Units Certificate in respect of the Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, subject in each case (except that the Applicable Ownership Interests in the Treasury Portfolio as specified in clause (ii) of the definition of such term shall not be subject to the Pledge) to the Pledge thereof, and the related Purchase Contract.
"Corporate Units Certificate" means a certificate evidencing the rights and obligations of a Holder in respect of the number of Corporate Units specified on such certificate.
"Coupon Rate" has the meaning set forth in the Supplemental Indenture.
"Current Market Price" means, in respect of a share of Common Stock on any date of determination, the average of the daily Closing Prices for the 10 consecutive Trading Days ending the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this definition, the term "ex date," when used with respect to any issuance or distribution, shall mean the first date on which Common Stock trades regular way on the relevant exchange or in the relevant market for the Common Stock, as determined pursuant to Closing Price definition without the right to receive such issuance or distribution. If, during the relevant period for the computation of the Current Market Price, an event occurs which would require an adjustment pursuant to Section 5.04, the Board of Directs shall make an appropriate and corresponding adjustment to the Current Market Price, as it determines in good faith, to acc ount for such event.
"Custodial Agent" means the Person named as Custodial Agent in the first Paragraph of this Agreement until a successor Custodial Agent shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Custodial Agent" shall mean the Person who is then the Custodial Agent hereunder.
"Depositary" means a clearing agency registered under Section 17A of the Exchange Act that is designated to act as Depositary for the Units as contemplated by Sections 3.06 and 3.08.
"Depositary Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Depositary effects book entry transfers and pledges of securities deposited with the Depositary.
"Distributed Property" has the meaning set forth in Section 5.04(a)(iii).
"Dividend Threshold Amount" has the meaning set forth in Section 5.04(a)(iv).
"DTC" means The Depository Trust Company.
"Early Settlement" has the meaning set forth in Section 5.07(a).
"Early Settlement Amount" has the meaning set forth in Section 5.07(b).
"Early Settlement Date" has the meaning set forth in Section 5.07(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder.
"Exchange Property" has the meaning set forth in Section 5.04(b)(i).
"Expiration Date" has the meaning set forth in Section 1.04(e).
"Expiration Time" has the meaning set forth in Section 5.04(a)(v).
"Failed Final Remarketing" has the meaning set forth in Section 5.02(c)(iii).
"Failed Optional Remarketing" has the meaning set forth in Section 5.02(a)(iv).
"Final Remarketing Period" means the period beginning February 2, 2009 and ending February 11, 2009.
"Fixed Settlement Rate" means each of the Minimum Settlement Rate and the Maximum Settlement Rate.
"Global Certificate" means a Certificate that evidences all or part of the Units and is registered in the name of the Depositary or a nominee thereof.
"Holder" means, with respect to a Unit, the Person in whose name the Unit evidenced by a Certificate is registered in the Security Register.
"Indemnitees" has the meaning set forth in Section 7.07(c).
"Indenture" means the Indenture, dated as of December 1, 2002, between the Company and the Indenture Trustee (including any provisions of the TIA that are deemed incorporated therein), as amended and supplemented from time to time, including by the Supplemental Indenture pursuant to which the Senior Notes will be issued.
"Indenture Trustee" means Deutsche Bank Trust Company Americas, a banking corporation of the State of New York, as trustee under the Indenture, or any successor thereto as described in the Indenture.
"Issuer Order" or "Issuer Request" means a written order or request signed in the name of the Company by an Authorized Officer and delivered to the Purchase Contract Agent.
"Losses" has the meaning set forth in Section 15.08(b).
"Maximum Settlement Rate" has the meaning set forth in Section 5.01(a).
"Minimum Settlement Rate" has the meaning set forth in Section 5.01(a).
"NYSE" has the meaning set forth in Section 5.01(a).
"Obligations" means, with respect to each Holder, all obligations and liabilities of such Holder under such Holder's Purchase Contract and this Agreement or any other document made, delivered or given in connection herewith or therewith, in each case whether on account of principal, interest (including, without limitation, interest accruing before and after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Holder, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Company or the Collateral Agent or the Securities Intermediary that are required to be paid by the Holder pursuant to the terms of any of the foregoing agreements).
"Offer Expiration Date" has the meaning set forth in Section 5.04(a)(v).
"Officer's Certificate" means a certificate signed by the Authorized Officer and delivered to the Purchase Contract Agent. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Agreement shall include the information set forth in Section 1.02 hereof.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel to the Company (and who may be an employee of the Company), and who shall be reasonably acceptable to the Purchase Contract Agent. An opinion of counsel may rely on certificates as to matters of fact.
"Optional Remarketing" has the meaning set forth in the Remarketing Agreement.
"Optional Remarketing Period" means (i) the period beginning on, and including, November 3, 2008 and ending on, and including, November 13, 2008 and (ii) unless a Successful Optional Remarketing has occurred, the period beginning on, and including, December 1, 2008 and ending on, and including, December 11, 2008, in each case during which the Company may elect for an Optional Remarketing to occur pursuant to Section 5.02.
"Outstanding" means, as of any date of determination, all Units evidenced by Certificates theretofore authenticated, executed and delivered under this Agreement, except:
provided, however, that in determining whether the Holders of the requisite number of the Units have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Units owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding Units, except that, in determining whether the Purchase Contract Agent shall be authorized and protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Units that a Responsible Officer of the Purchase Contract Agent actually knows to be so owned shall be so disregarded. Units so owned that have been pledged in good faith may be regarded as Outstanding Units if the pledgee establishes to the satisfaction of the Purchase Contract Agent the pledgee's right so to act with respect to such Units and that the pledgee is not the Company or any Affiliate of the Company.
"Payment Date" means each February 17, May 17, August 17 and November 17 of each year, commencing February 17, 2006.
"Permitted Investments" means any one of the following, but, except for clause (4) below, in any case each investment shall not exceed 5% of the total debt outstanding of any single issuer:
(1) any evidence of indebtedness with an original maturity of 365 days or less issued, or directly and fully guaranteed or insured, by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support of the timely payment thereof or such indebtedness constitutes a general obligation of it);
(2) time deposits or certificates of deposit with an original maturity of 365 days or less of any institution which is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500 million at the time of deposit and having a rating at the time of deposit at least equal to "A-1" by Standard & Poor's Ratings Services ("S&P") and at least equal to "P-1" by Moody's Investors Service, Inc. ("Moody's") (and which may include the institution acting as the Collateral Agent);
(3) investments in commercial paper, other than commercial paper issued by the Company or its Affiliates, of any corporation incorporated under the laws of the United States or any State thereof, which commercial paper has a rating at the time of purchase at least equal to "A-1" by S&P or at least equal to "P-1" by Moody's; and
(4) investments in money market funds (including, but not limited to, money market funds managed by the institution acting as the Collateral Agent or an affiliate of the institution acting as the Collateral Agent) registered under the Investment Company Act of 1940, as amended, rated in the highest applicable rating category by S&P or Moody's.
"Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity of whatever nature.
"Plan" means an employee benefit plan that is subject to ERISA, a plan or individual retirement account that is subject to Section 4975 of the Code or any entity whose assets are considered assets of any such plan.
"Pledge" means the lien and security interest in the Collateral created by this Agreement.
"Pledged Applicable Ownership Interests in Senior Notes" means the Applicable Ownership Interests in Senior Notes and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.
"Pledged Applicable Ownership Interests in the Treasury Portfolio" means the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition thereof) and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.
"Pledge Indemnitees" has the meaning set forth in Section 15.08(b).
"Pledged Securities" means the Pledged Applicable Ownership Interests in Senior Notes, the Pledged Applicable Ownership Interests in the Treasury Portfolio and the Pledged Treasury Securities, collectively.
"Pledged Treasury Securities" means Treasury Securities and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.
"Predecessor Certificate" means a Predecessor Corporate Units Certificate or a Predecessor Treasury Units Certificate.
"Predecessor Corporate Units Certificate" of any particular Corporate Units Certificate means every previous Corporate Units Certificate evidencing all or a portion of the rights and obligations of the Company and the Holder under the Corporate Units evidenced thereby; and, for the purposes of this definition, any Corporate Units Certificate authenticated and delivered under Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Corporate Units Certificate shall be deemed to evidence the same rights and obligations of the Company and the Holder as the mutilated, destroyed, lost or stolen Corporate Units Certificate.
"Predecessor Treasury Units Certificate" of any particular Treasury Units Certificate means every previous Treasury Units Certificate evidencing all or a portion of the rights and obligations of the Company and the Holder under the Treasury Units evidenced thereby; and, for the purposes of this definition, any Treasury Units Certificate authenticated and delivered under Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Treasury Units Certificate shall be deemed to evidence the same rights and obligations of the Company and the Holder as the mutilated, destroyed, lost or stolen Treasury Units Certificate.
"Primary Treasury Dealer" means a primary U.S. government securities dealer.
"Pro Rata" or "pro-rata" shall mean pro rata to each Holder according to the aggregate Stated Amount of the Units held by such Holder in relation to the aggregate Stated Amount of all Units outstanding.
"Proceeds" has the meaning ascribed thereto in the UCC and includes, without limitation, all interest, dividends, cash, instruments, securities, financial assets and other property received, receivable or otherwise distributed upon the sale (including, without limitation, any Remarketing), exchange, collection or disposition of any financial assets from time to time credited to the Collateral Account.
"Prospectus" means the prospectus relating to the delivery of shares or any securities in connection with an Early Settlement pursuant to Section 5.07 or a Cash Merger Early Settlement of Purchase Contracts pursuant to Section 5.04(b)(ii), in the form in which first filed, or transmitted for filing, with the Securities and Exchange Commission after the effective date of the Registration Statement pursuant to Rule 424(b) under the Securities Act, including the documents incorporated by reference therein as of the date of such Prospectus.
"Purchase Contract" means, with respect to any Unit, the contract forming a part of such Unit and obligating the Company to (i) sell, and the Holder of such Unit to purchase, shares of Common Stock and (ii) pay the Holder thereof Contract Adjustment Payments, in each case on the terms and subject to the conditions set forth in Article 5 hereof.
"Purchase Contract Agent" means the Person named as the "Purchase Contract Agent" in the first paragraph of this Agreement until a successor Purchase Contract Agent shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Purchase Contract Agent" shall mean such Person or any subsequent successor who is appointed pursuant to this Agreement.
"Purchase Contract Settlement Date" means February 17, 2009.
"Purchase Contract Settlement Fund" has the meaning set forth in Section 5.03.
"Purchase Price" has the meaning set forth in Section 5.01(a).
"Purchased Shares" has the meaning set forth in Section 5.04(a)(vi).
"Put Right" has the meaning set forth in the Supplemental Indenture.
"Quotation Agent" means any Primary Treasury Dealer selected by the Company.
"Record Date" for any distribution and any Contract Adjustment Payment payable on any Payment Date means the first day of the calendar month in which the relevant Payment Date falls (whether or not a Business Day).
"Record Date for Common Stock" means, for purposes of Section 5.04(a), with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which Common Stock (or other applicable security) is subdivided, split, combined, or exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of Common Stock subject to such subdivision, split or combination or entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).
"Redemption Amount" has the meaning set forth in the Supplemental Indenture.
"Redemption Price" has the meaning set forth in the Supplemental Indenture.
"Reference Price" has the meaning set forth in Section 5.01(a).
"Registration Statement" means a registration statement under the Securities Act prepared by the Company covering, inter alia, the delivery by the Company of any securities in connection with an Early Settlement on the Early Settlement Date or a Cash Merger Early Settlement on the Cash Merger Early Settlement Date under Section 5.04(b)(ii), including all exhibits thereto and the documents incorporated by reference in the prospectus contained in such registration statement, and any post-effective amendments thereto.
"Remarketing" has the meaning set forth in the Remarketing Agreement.
"Remarketing Agent" has the meaning set forth in the Supplemental Indenture.
"Remarketing Agreement" has the meaning set forth in the Supplemental Indenture.
"Remarketing Date" means the day or days selected for Remarketing in an Optional Remarketing Period or the Final Remarketing Period.
"Remarketing Fee" has the meaning set forth in the Remarketing Agreement.
"Remarketing Per Senior Note Price" means the Treasury Portfolio Purchase Price divided by the number of $1000 principal amount of Senior Notes underlying the Pledged Applicable Ownership Interests that are held as components of Corporate Units and remarketed in an Optional Remarketing.
"Remarketing Price" means (i) in the case of an Optional Remarketing, 100% of the Treasury Portfolio Purchase Price (including, in the case of an Optional Remarketing occurring between December 1, 2008 and December 11, 2008, accrued and unpaid interest (prior to any reset of the interest rate on the Senior Notes) to the Remarketing Settlement Date) plus the Separate Senior Notes Purchase Price (if any) and (ii) in the case of a Final Remarketing, 100% of the aggregate principal amount of Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes and Separate Senior Notes to be remarketed in such Final Remarketing.
"Remarketing Settlement Date" has the meaning set forth in the Remarketing Agreement.
"Reorganization Event" has the meaning set forth in Section 5.04(b)(i).
"Reset Rate" has the meaning set forth in the Remarketing Agreement.
"Responsible Officer" means, when used with respect to the Purchase Contract Agent, any officer of the Purchase Contract Agent within the corporate trust department (or any successor unit, department or division of the Purchase Contract Agent) of the Purchase Contract Agent including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Purchase Contract Agent who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who has direct responsibility for the administration of this Agreement.
"Rights" has the meaning set forth in Section 5.04(a)(ix).
"Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder.
"Securities Intermediary" means the Person named as Securities Intermediary in the first Paragraph of this Agreement until a successor Securities Intermediary shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Securities Intermediary" shall mean such successor or any subsequent successor.
"Security Register" and "Securities Registrar" have the respective meanings set forth in Section 3.05.
"Senior Indebtedness" means indebtedness of any kind of the Company unless the instrument under which such indebtedness is incurred expressly provides that it is on a parity in right of payment with or subordinate in right of payment to the Contract Adjustment Payments.
"Senior Notes" means the series of notes designated the Senior Notes, Series A of the Company issued pursuant to the Supplemental Indenture.
"Separate Senior Notes" means Senior Notes that have been released from the Pledge following Collateral Substitution and therefore no longer underlie Corporate Units.
"Separate Senior Notes Purchase Price" means, for any Optional Remarketing, the amount in cash equal to the product of the Remarketing Per Senior Note Price multiplied by the number of $1,000 principal amount of Separate Senior Notes remarketed in such Optional Remarketing.
"Settlement Rate" has the meaning set forth in Section 5.01(a).
"Special Event" has the meaning set forth in the Supplemental Indenture.
"Special Event Redemption" has the meaning set forth in the Supplemental Indenture.
"Special Event Redemption Date" has the meaning set forth in the Supplemental Indenture.
"Stated Amount" means $50.
"Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.
"Successful Final Remarketing" has the meaning set forth in Section 5.02(c)(ii).
"Successful Optional Remarketing" has the meaning set forth in Section 5.02(a)(ii).
"Supplemental Indenture" means the Supplemental Indenture No. 1 dated as of the date hereof between the Company and the Indenture Trustee pursuant to which the Senior Notes are issued.
"Tax Event" has the meaning set forth in the Supplemental Indenture.
"Termination Date" means the date, if any, on which a Termination Event occurs.
"Termination Event" means the occurrence of any of the following events:
"Threshold Appreciation Price" has the meaning set forth in Section 5.01(a).
"TIA" means the Trust Indenture Act of 1939 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder.
"TRADES" means the Treasury/Reserve Automated Debt Entry System maintained by the Federal Reserve Bank of New York pursuant to the TRADES Regulations.
"TRADES Regulations" means the regulations of the United States Department of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time. Unless otherwise defined herein, all terms defined in the TRADES Regulations are used herein as therein defined.
"Trading Day" has the meaning set forth in Section 5.01(a).
"Transfer" means (i) in the case of certificated securities in registered form, delivery as provided in Section 8-301(a) of the UCC, indorsed to the transferee or in blank by an effective endorsement; (ii) in the case of Treasury Securities, registration of the transferee as the owner of such Treasury Securities on TRADES; and (iii) in the case of security entitlements, including, without limitation, security entitlements with respect to Treasury Securities, a securities intermediary indicating by book entry that such security entitlement has been credited to the transferee's securities account.
"Treasury Portfolio" means a portfolio of (1) U.S. treasury securities (or principal or interest strips thereof) that mature on February 15, 2009 (and in any event payable on or prior to February 16, 2009) in an aggregate amount equal to the Pledged Applicable Ownership Interests in Senior Notes, and (2) (x) in the case of a Successful Optional Remarketing, for the scheduled Interest Payment Date (as defined in the Supplemental Indenture) on the Senior Notes that occurs on the Purchase Contract Settlement Date, U.S. treasury securities (or principal or interest strips thereof) that mature on February 15, 2009 (and in any event payable on or prior to February 16, 2009) in an aggregate amount equal to the aggregate interest payment (assuming no reset of the interest rate) that would have been due on the Purchase Contract Settlement Date on the Pledged Applicable Ownership Interests in Senior Notes, and (y) in the case of a Special Event Redemption, for each scheduled Interest Payment Date t hat occurs after the Special Event Redemption Date to and including the Purchase Contract Settlement Date, U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to the Business Day immediately preceding such scheduled Interest Payment Date in an aggregate amount equal to the aggregate interest payment (assuming no reset of the interest rate) that would have been due on such scheduled Interest Payment Date on the Applicable Ownership Interests in Senior Notes.
"Treasury Portfolio Purchase Price" means the lowest aggregate ask-side price quoted by a Primary Treasury Dealer to the Quotation Agent between 9:00 a.m. and 11:00 a.m. (New York City time) (i) in the case of a Special Event Redemption, on the third Business Day immediately preceding the Special Event Redemption Date for the purchase of the applicable Treasury Portfolio for settlement on the Special Event Redemption Date, and (ii) in the case of any Successful Optional Remarketing, on the date of such Successful Optional Remarketing for the purchase of the applicable Treasury Portfolio for settlement on the Optional Remarketing Settlement Date.
"Treasury Securities" means zero-coupon U.S. treasury securities that mature on February 15, 2009 (and payable on or prior to the Purchase Contract Settlement Date) (CUSIP No. 912820JW8).
"Treasury Unit" means, following the substitution of Treasury Securities for Pledged Applicable Ownership Interests in Senior Notes or Pledged Applicable Ownership Interests in the Treasury Portfolio, as the case may be, as collateral to secure a Holder's obligations under the Purchase Contract, the collective rights and obligations of a Holder of a Treasury Units Certificate in respect of such Treasury Securities, subject to the Pledge thereof, and the related Purchase Contract.
"Treasury Units Certificate" means a certificate evidencing the rights and obligations of a Holder in respect of the number of Treasury Units specified on such certificate.
"Trigger Event" has the meaning set forth in Section 5.04(a)(iii).
"UCC" means the Uniform Commercial Code as in effect in the State of New York from time to time.
"Underwriters" means the underwriters identified in Schedule II to the Underwriting Agreement.
"Underwriting Agreement" means the Underwriting Agreement, dated December 14, 2005, between the Company and Citigroup Global Markets Inc. , Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc., as representatives of the Underwriters, relating to the sale of Corporate Units.
"Unit" means a Corporate Unit or a Treasury Unit, as the case may be.
"Units Prospectus" means the Prospectus dated December 14, 2005, which is a part of the registration statement on Form S-1 (No. 333-130107), as amended by the Pre-Effective Amendment No. 1 filed by the Company with the Securities and Exchange Commission.
"Value" means, with respect to any item of Collateral on any date, as to (1) Cash, the amount thereof, (2) Treasury Securities, the aggregate principal amount thereof at maturity, (3) Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term), the appropriate aggregate percentage of the aggregate principal amount at maturity of the underlying Treasury Portfolio and (4) Applicable Ownership Interests in Senior Notes, the appropriate aggregate percentage of the aggregate principal amount at maturity of the underlying Senior Notes.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreem ent shall include:
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which its certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument.
With respect to any record date set pursuant to this Section 1.04(e), the Company may designate any date as the "Expiration Date" and from time to time may change the Expiration Date to any later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the Purchase Contract Agent in writing, and to each Holder in the manner set forth in Section 1.06, prior to or on the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the Company shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date.
The Purchase Contract Agent shall send to the Indenture Trustee at the following address a copy of any notices in the form of Exhibits C, D, E, F, H or J it sends or receives:
Deutsche Bank Trust Company Americas
60 Wall Street
New York, New York 10005
Attention: Corporate Trust and Agency Services
Fax: (732) 578-4635
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Purchase Contract Agent shall constitute a sufficient notification for every purpose hereunder.
In any case where the Purchase Contract Settlement Date or any Early Settlement Date or Cash Merger Early Settlement Date shall not be a Business Day (notwithstanding any other provision of this Agreement or the Units), Purchase Contracts shall not be performed and Early Settlement and Cash Merger Early Settlement shall not be effected on such date, but Purchase Contracts shall be performed or Early Settlement or Cash Merger Early Settlement shall be effected, as applicable, on the next succeeding Business Day with th e same force and effect as if made on such Purchase Contract Settlement Date, Early Settlement Date or Cash Merger Early Settlement Date, as applicable.
The definitive Certificates shall be produced in any manner as determined by the officers of the Company executing the Units evidenced by such Certificates, consistent with the provisions of this Agreement, as evidenced by their execution ther eof.
Every Global Certificate authenticated, executed on behalf of the Holders and delivered hereunder shall bear a legend substantially in the form set forth in Exhibit A and Exhibit B for a Global Certificate.
The Certificates shall be issuable only in registered form and only in denominations of a single Corporate Unit or Treasury Unit and any integral multiple thereof.
Upon the formation of a Treasury Unit pursuant to Section 3.13, each Treasury Units Certificate shall evidence the number of Treasury U nits specified therein, with each such Treasury Unit representing (1) the ownership by the Holder thereof of a 1/20 or 5% undivided beneficial interest in a Treasury Security with a principal amount equal to $1,000, subject to the Pledge of such interest by such Holder pursuant to this Agreement, and (2) the rights and obligations of the Holder thereof and the Company under one Purchase Contract. The Purchase Contract Agent is hereby authorized, as attorney-in-fact for, and on behalf of, the Holder of each Treasury Unit, to pledge, pursuant to Article 11 hereof, such Holder's interest in the Treasury Security forming a part of such Treasury Unit to the Collateral Agent, as agent of and for the benefit of the Company, and to grant to the Collateral Agent, for the benefit of the Company, a security interest in the right, title and interest of such Holder in such Treasury Security to secure the obligation of the Holder under each Purchase Contract to purchase shares of Common Stock.
Prior to the purchase of shares of Common Stock under each Purchase Contract, such Purchase Contracts shall not entitle the Holder of a Unit to any of the rights of a holder of shares of Common Stock, including, without limitation, the right to vote or receive any dividends or other payments or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or for the election of directors of the Company or for any other matter, or any other rights whatsoever as a shareholder of the Company.
The Certificates shall be executed on behalf of the Company by its Chairman of the Board of Directors, its Chief Executive Officer, its President, its Treasurer, one of its Vice Presidents or one of its Assistant Treasurers. The signature of any of these officers on the Certificates may be manual or facsimile.
Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates.
No Purchase Contract evidenced by a Certificate shall be valid until such Certificate has been executed on behalf of the Holder by the manual signature of an authorized officer of the Purchase Contract Agent, as such Holder's attorney-in-fact. Such signature by an authorized officer of the Purchase Contract Agent shall be conclusive evidence that the Holder of such Certificate has entered into the Purchase Contracts evidenced by such Certificate.
Each Certificate shall be dated the date of its authentication.
No Certificate shall be entitled to any benefit under this Agreement or be valid or obligatory for any purpose unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by an authorized officer of the Purchase Contract Agent by manual signature, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder.
If temporary Certificates are issued, the Company will cause definitive Certificates to be prepared without unreasonable del ay. After the preparation of definitive Certificates, the temporary Certificates shall be exchangeable for definitive Certificates upon surrender of the temporary Certificates at the Corporate Trust Office, at the expense of the Company and without charge to the Holder. Upon surrender for cancellation of any one or more temporary Certificates, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver in exchange therefor, one or more definitive Certificates of like tenor and denominations and evidencing a like number of Units as the temporary Certificate or Certificates so surrendered. Until so exchanged, the temporary Certificates shall in all respects evidence the same benefits and the same obligations with respect to the Units evidenced thereby as definitive Certificates.
Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the designated transferee or transferees, and deliver, in the name of the designated transferee or transferees, one or more new Certificates of any a uthorized denominations, like tenor, and evidencing a like number of Corporate Units or Treasury Units, as the case may be.
At the option of the Holder, Certificates may be exchanged for other Certificates, of any authorized denominations and evidencing a like number of Corporate Units or Treasury Units, as the case may be, upon surrender of the Certificates to be exchanged at the Corporate Trust Office. Whenever any Certificates are so surrendered for exchange, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver the Certificates which the Holder making the exchange is entitled to receive.
All Certificates issued upon any registration of transfer or exchange of a Certificate shall evidence the ownership of the same number of Corporate Units or Treasury Units, as the case may be, and be entitled to the same benefits and subject to the same obligations under this Agreement as the Corporate Units or Treasury Units, as the case may be, evidenced by the Certificate surrendered upon such registration of transfer or exchange.
Every Certificate presented or surrendered for registration of transfer or exchange shall (if so required by the Purchase Contract Agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Purchase Contract Agent duly executed by the Holder thereof or its attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of a Certificate, but the Company and the Purchase Contract Agent may require payment from the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Certificates, other than any exchanges pursuant to Section 3.04, Section 3.06 and Section 8.05 not involving any transfer.
Notwithstanding the foregoing, the Company shall not be obligated to execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall not be obligated to authenticate, execute on behalf of the Holder and deliver any Certificate in exchange for any other Certificate presented or surrendered for registration of transfer or for exchange on or after the Business Day immediately preceding the earliest to occur of any Early Settlement Date with respect to such Certificate, any Cash Merger Early Settlement Date with respect to such Certificate, the Purchase Contract Settlement Date or the Termination Date. In lieu of delivery of a new Certificate, upon satisfaction of the applicable conditions specified above in this Section and receipt of appropriate registration or transfer instructions from such Holder, the Purchase Contract Agent shall:
Transfers of securities evidenced by Global Certificates shall be made through the facilities of the Depositary, and any cancellation of, or increase or decrease in the number of, such securities (including the creation of Treasury Units and the recreation of Corporate Units pursuant to Section 3.13 and Section 3.14, respectively) shall be accomplished by making appropriate annotations on the Schedule of Increases and Decreases set forth in such Global Certificate.
If:
then (x) definitive Certificates shall be prepared by the Company with respect to such Units and delivered to the Purchase Contract Agent and (y) upon surrender of the Global Certificates representing the Units by the Depositary, accompanied by registration instructions (other than in the case of clause (iv) above), the Company shall cause definitive Certificates to be delivered to Beneficial Owners in accordance with instructions provided by the Depositary. The Company and the Purchase Contract Agent shall not be liable for any delay in delivery of such instructions and may conclusively rely on and shall be authorized and protected in relying on, such instructions. Each definitive Certificate so delivered shall evidence Units of the same kind and tenor as the Global Certificate so surrendered in respect thereof.
If there shall be delivered to the Company and the Purchase Contract Agent (i) evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) such security or indemnity as may be required by them to hold each of them and any agent of any of them harmless, then, in the absence of notice to the Company or the Purchase Contract Agent that such Certificate has been acquired by a protected purchaser, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver to the Holder, in lieu of any such destroyed, lost or stolen Certificate, a new Certificate, evidencing the same number of Corporate Units or Treasury Units, as the case may be, and bearing a Certificate number not contemporaneously outstanding.
Notwithstanding the foregoing, the Company shall not be obligated to execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall not be obligated to authenticate, execute on behalf of the Holder, and deliver to the Holder, a Certificate on or after the Business Day immediately preceding the earliest of any Early Settlement Date with respect to such lost, stolen, destroyed or mutilated Certificate, any Cash Merger Early Settlement Date with respect to such lost, stolen, destroyed or mutilated Certificate, the Purchase Contract Settlement Date or the Termination Date. In lieu of delivery of a new Certificate, upon satisfaction of the applicable conditions specified above in this Section and receipt of appropriate registration or transfer instructions from such Holder, the Purchase Contract Agent shall:
Upon the issuance of any new Certificate under this Section, the Company and the Purchase Contract Agent may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other fees and expenses (including, without limitation, the fees and expenses of the Purchase Contract Agent) connected therewith.
Every new Certificate issued pursuant to this Section in lieu of any destroyed, lost or stolen Certificate shall constitute an original additional contractual obligation of the Company and of the Holder in respect of the Units evidenced thereby, whether or not the destroyed, lost or stolen Certificate (and the Units evidenced thereby) shall be at any time enforceable by anyone, and shall be entitled to all the benefits and be subject to all the obligations of this Agreement equally and proportionately with any and all other Certificates delivered hereunder.
The provisions of this Section are exclusive and shall preclude, to the extent lawful, all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Certificates.
Notwithstanding the foregoing, with respect to any Global Certificate, nothing contained herein shall prevent the Company, the Purchase Contract Agent or any agent of the Company or the Purchase Contract Agent, from giving effect to any written certification, proxy or other authorization furnished by the Depositary (or its nominee), as a Holder, with respect to such Global Certificate, or impair, as between such Depositary and the related Beneficial Owner, the operation of customary practices governing the exercise of rights of the Depositary (or its nominee) as Holder of such Global Certificate. None of the Company, the Purchase Contract Agent or any agent of the Company or the Purchase Contract Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Certificate or maintaining, supervising or reviewing any records relating to such benefic ial ownership interests.
If the Company or any Affiliate of the Company shall acquire any Certificate, such acquisition shall not operate as a cancellation of such Certificate unless and until such Certificate is delivered to the Purchase Contract Agent cancelled or for cancellation.
(1) Transfer to the Securities Intermediary, for credit to the Collateral Account, Treasury Securities or security entitlements with respect thereto having a Value equal to the aggregate principal amount of the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes for which such Collateral Substitution is made; and
(2) Transfer the related Corporate Units to the Purchase Contract Agent accompanied by a notice to the Purchase Contract Agent, substantially in the form of Exhibit C hereto, whereupon the Purchase Contract Agent shall promptly provide an instruction to such effect to the Collateral Agent, substantially in the form of Exhibit F hereto.
Upon confirmation that the Treasury Securities described in clause (1) above or security entitlements with respect thereto have been credited to the Collateral Account and receipt of the instruction to the Collateral Agent described in clause (2) above, the Collateral Agent shall release such Pledged Applicable Ownership Interests in Senior Notes from the Pledge and instruct the Securities Intermediary by a notice, substantially in the form of Exhibit G hereto, to Transfer the Senior Notes underlying such Pledged Applicable Ownership Interests in Senior Notes to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.
Upon credit to the Collateral Account of Treasury Securities or security entitlements with respect thereto delivered by a Holder of Corporate Units and receipt of the related instruction from the Collateral Agent, the Securities Intermediary shall promptly Transfer the Senior Notes underlying the appropriate Pledged Applicable Ownership Interests in Senior Notes to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.
Upon receipt of the Senior Notes underlying such Pledged Applicable Ownership Interests in Senior Notes, the Purchase Contract Agent shall promptly:
Holders who elect to separate the Senior Notes by substituting Treasury Securities for Applicable Ownership Interest in Senior Notes shall be responsible for any fees or expenses (including, without limitation, fees and expenses payable to the Collateral Agent), in respect of the substitution, and neither the Company nor the Purchase Contract Agent shall be responsible for any such fees or expenses.
(1) Transfer to the Securities Intermediary, for credit to the Collateral Account, Senior Notes or security entitlements with respect thereto having an aggregate principal amount equal to the Value of the Pledged Treasury Securities to be released; and
(2) Transfer the related Treasury Units to the Purchase Contract Agent accompanied by a notice to the Purchase Contract Agent, substantially in the form of Exhibit C hereto, whereupon the Purchase Contract Agent shall promptly provide an instruction to such effect to the Collateral Agent, substantially in the form of Exhibit H hereto.
Upon confirmation that the Senior Notes described in clause (1) above or security entitlements with respect thereto has been credited to the Collateral Account and receipt of the instruction from the Purchase Contract Agent described in clause (2) above, the Collateral Agent shall release such Pledged Treasury Securities from the Pledge and shall instruct the Securities Intermediary by a notice, substantially in the form of Exhibit I hereto, to Transfer such Pledged Treasury Securities to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.
Upon credit to the Collateral Account of Senior Notes or security entitlements with respect thereto delivered by a Holder of Treasury Units and receipt of the related instruction from the Collateral Agent, the Securities Intermediary shall promptly Transfer the Pledged Treasury Securities to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.
Upon receipt of such Treasury Securities, the Purchase Contract Agent shall promptly:
Holders who elect to recreate Corporate Units shall be responsible for any fees or expenses (including, without limitation, fees and expenses payable to the Collateral Agent), in respect of the recreation, and neither the Company nor the Purchase Contract Agent shall be responsible for any such fees or expenses.
to the Purchase Contract Agent for the benefit of the Holders for distribution to such Holders, in accordance with their respective interests, free and clear of the Pledge created hereby; provided, however, if any Holder or Beneficial Owner shall be entitled to receive Senior Notes in an aggregate principal amount of less than $1,000, or greater than $1,000 but not in an integral multiple of $1,000, the Purchase Contract Agent shall request, on behalf of such Holder or Beneficial Owner, pursuant to Section 2.03 of the Supplemental Indenture that the Company issue Senior Notes in denominations of $50, or integral multiples thereof, in exchange for Senior Notes in denominations of $1,000 or integral multiples thereof; and provided further, if any Holder shall be entitled to receive less than $1,000 with respect to its Pledged Applicable Ownership Interests in the Treasury Portfolio, the Purchase Contract Agent shall dispose of such interest for cash and deliver to such Holder cash in li eu of delivering the Pledged Applicable Ownership Interests in the Treasury Portfolio.
Upon the written request of the Holders of Corporate Units on such record date received by the Purchase Contract Agent at least six days prior to such meeting or the expiration date of any consent solicitation, the Purchase Contract Agent shall endeavor insofar as practicable to vote or cause to be voted or to consent with respect to, in accordance with the instructions set forth in such requests, the maximum aggregate principal amount of Senior Notes as to which any particular voting or consenting instructions are received. In the absence of specific instructions from the Holder of Corporate Units, the Purchase Contract Agent shall abstain from voting or consenting with respect to the Senior Notes underlying Applicable Ownership Interests in Senior Notes that are a component of such Corporate Units. The Company hereby agrees, if applicable, to solicit Holders of Corporate Units to timely instruct the Purchase Contract Agent as to the exercise of such voting or consenting rights in order to enable the P urchase Contract Agent to vote or consent with respect to such Senior Notes.
in each case rounded upward or downward to the nearest 1/10,000th of a share.
The "Applicable Market Value" means the average of the Closing Price per share of Common Stock on each of the 20 consecutive Trading Days ending on the third Trading Day immediately preceding the Purchase Contract Settlement Date, as calculated by the Company.
The "Closing Price" per share of Common Stock on any date of determination means:
A "Trading Day" means a day on which shares of the Common Stock (i) are not suspended from trading on any United States national or regional securities exchange or association or over-the-counter market at the close of business and (ii) have traded at least once on the United States national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.
provided that upon a Termination Event, the rights of the Holder of such Units under the Purchase Contract may be enforced without regard to any other rights or obligations.
The Company shall instruct the Collateral Agent in writing as to the type of Permitted Investments in which any such Cash shall be invested; provided, however, that if the Company fails to deliver such written instructions by 10:30 a.m. (New York City time) on the day such Cash is received by the Collateral Agent or to be reinvested by the Securities Intermediary, the Collateral Agent shall instruct the Securities Intermediary to invest such Cash in the Permitted Investments described in clause (6) of the definition of Permitted Investments, and provided, further, however, that any such Permitted Investments shall mature on the Purchase Contract Settlement Date. The Collateral Agent may conclusively rely on any written direction and shall bear no liability for any loss or other damage based on acting or omitting to act under this Section 5.02 pursuant to any direction of the Company and in no event shall the Collateral Agent or Securities Intermediary be liable for the selection of Permitted Investments or for investment losses incurred thereon. The Collateral Agent and Securities Intermediary shall have no liability in respect of losses incurred as a result of the failure of the Company to provide timely written investment direction.
Upon maturity of the Permitted Investments on the Purchase Contract Settlement Date, the Collateral Agent shall, and is hereby authorized to, (A) instruct the Securities Intermediary to remit to the Company on the Purchase Contract Settlement Date such portion of the proceeds of such Permitted Investments as is equal to the aggregate Purchase Price under all Purchase Contracts in respect of which Cash Settlement has been affected as provided in this Section 5.02 to the Company on the Purchase Contract Settlement Date, and (B) release any amounts in excess of such amount earned from such Permitted Investments to the Purchase Contract Agent for distribution to the Holders who have effected Cash Settlement pro-rata in proportion to the amount paid by such Holders under Section 5.02(b)(ii) above.
Subject to the foregoing, upon presentation and surrender of a Certificate, if in certificated form, to the Purchase Contract Agent on or after the Purchase Contract Settlement Date, Early Settlement Date or Cash Merger Early Settlement Date, as the case may be, together with settlement instructions thereon duly completed and executed, the Holder of such Certificate shall be entitled to receive forthwith in exchange therefor a certificate representing that number of newly issued whole shares of Common Stock which such Holder is entitled to receive pursuant to the provisions of this Article 5 (after taking into account all Units then held by such Holder), together with cash in lieu of fractional shares as provided in Section 5.08 and any dividends or distributions with respect to such shares constituting part of the Purchase Contract Settlement Fund, but without any interest thereon, and the Certificate so surrendered shall forthwith be cancelled. Such shares shall be registered in the name of the Holder or the Holder's designee as specified in the settlement instructions set forth on the reverse of the Certificate provided by the Holder to the Purchase Contract Agent. If any shares of Common Stock issued in respect of a Purchase Contract are to be registered in the name of a Person other than the Person in whose name the Certificate evidencing such Purchase Contract is registered (but excluding any Depositary or nominee thereof), no such registration shall be made unless and until the Person requesting such registration has paid any transfer and other taxes (including any applicable stamp taxes) required by reason of such registration in a name other than that of the registered Holder of the Cer tificate evidencing such Purchase Contract or has established to the satisfaction of the Company that such tax either has been paid or is not payable.
Adjustments for Dividends, Distributions, Stock Splits, Etc.
Each Fixed Settlement Rate shall be, without duplication, subject to the following adjustments:
where,
SR0 = the Fixed Settlement Rate in effect at the close of business on the Record Date for Common Stock;
SR1 = the Fixed Settlement Rate in effect immediately after the Record Date for Common Stock;
OS0 = the number of shares of Common Stock outstanding at the close of business on the Record Date for Common Stock, prior to giving effect to any such event;
OS1 = the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such event;
such adjustment in each Fixed Settlement Rate to become effective immediately after the opening of business on the day following the Record Date for Common Stock. For the purposes of this paragraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include any shares issuable in respect of any scrip certificates issued in lieu of fractions of shares of Common Stock. The Company agrees that it shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.
where,
SR0 = the Fixed Settlement Rate in effect at the close of business on the Record Date for Common Stock
SR1 = the Fixed Settlement Rate in effect immediately after the Record Date for Common Stock
OS0 = the number of shares of Common Stock outstanding at the close of business on the Record Date for Common Stock
X = the total number of shares of Common Stock issuable pursuant to such rights or upon a conversion of such securities
Y = the aggregate price payable to exercise such rights (or the aggregate conversion price paid upon conversion) divided by the average of the Closing Prices of Common Stock for the ten (10) consecutive Trading Days prior to the Business Day immediately preceding the announcement of the issuance of such rights
such adjustment in each Fixed Settlement Rate to be made whenever such rights or warrants are issued, and to become effective immediately after the opening of business on the day following the Record Date for Common Stock for such issuance or distribution. To the extent that shares of Common Stock or such convertible securities are not delivered after the expiration of such rights or warrants, each Fixed Settlement Rate shall be readjusted to a Fixed Settlement Rate that would then be in effect had the adjustments made upon the issuance or distribution of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock or such convertible securities actually delivered. For the purposes of this clause (ii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include any shares issuable in respect of any scrip certificates issued in lieu of fractions of shares of Common Stock. The Company agrees that it shall not issue any such rights, warrants or options in respect of shares of Common Stock held in the treasury of the Company.
where,
SR0 = the Fixed Settlement Rate in effect at the close of business on the Record Date for Common Stock
SR1 = the Fixed Settlement Rate in effect immediately after the Record Date for Common Stock
SP0 = the Current Market Price as of the Record Date for Common Stock
FMV = the fair market value as of the Record Date for Common Stock (as determined by the Board of Directors), on the Record Date for Common Stock, of the shares of capital stock, evidences of indebtedness or assets so distributed, expressed as an amount per share of Common Stock
such adjustment to each Fixed Settlement Rate to become effective at the opening of business on the day following such Record Date for Common Stock; provided that if the fair market value of the Distributed Property applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date for Common Stock, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon settlement the amount of Distributed Property such Holder would have received had such Holder settled each Purchase Contract on the date fixed for such determination as if the Purchase Contract Settlement Date were such date fixed for such determination. In the event that such dividend or distribution is not so paid or made, each Fixed Settlement Rate shall again be adjusted to be the Fixed Settlement Rate that would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 5.04(a)(iii) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price on the applicable Record Date for Common Stock.
(x) Notwithstanding the foregoing, if the Distributed Property distributed by the Company to all holders of its Common Stock consist of capital stock of, or similar equity interests in, a Subsidiary or other business unit of the Company that are, or, when issued, will be, traded on a U.S. securities exchange or quoted on The Nasdaq National Market or The Nasdaq Small Cap Market, clause (w) above shall not apply and instead each Fixed Settlement Rate shall be adjusted based on the following formula,
where,
SR0 = the Fixed Settlement Rate in effect at the close of business on the Record Date for Common Stock
SR1 = the Fixed Settlement Rate in effect immediately after the Record Date for Common Stock
FMV0 = the average of the Closing Prices of the capital stock or similar equity interests distributed to holders of Common Stock applicable to one share of Common Stock over the ten (10) consecutive Trading Days commencing on and including the third Trading Day after the date on which "ex-distribution trading" commences for such dividend or distribution on The Nasdaq National Market or The Nasdaq Small Cap Market or such other national or regional exchange or market on Common Stock then listed or quoted
MP0 = the average of the Closing Prices of Common Stock over the 10 consecutive Trading Days commencing on and including the third Trading Day after the date on which "ex-distribution trading" commences for such dividend or distribution on The Nasdaq National Market or The Nasdaq Small Cap Market or such other national or regional exchange or market on which the Common Stock is then listed or quoted
such adjustment to each Fixed Settlement Rate to become effective immediately after the opening of business on the day following such Record Date for Common Stock. In any case in which this paragraph (x) is applicable, Section 5.04(a)(i), Section 5.04(a)(ii) and paragraph (w) of this Section 5.04(a)(iii) shall not be applicable. If Distributed Property distributed by the Company to all holders of its Common Stock consists of shares of capital stock of, or similar equity interests in, a subsidiary or other business unit of the Company that are not, or, when issued, will not be, traded on a U.S. securities exchange or quoted on The Nasdaq National Market or The Nasdaq Small Cap Market, then each Fixed Settlement Rate then in effect will be adjusted as provided in paragraph (w) of this Section 5.04(a)(iii).
(y) Notwithstanding anything to the contrary contained in this Section 5.04(a), rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event") (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 5.04(a) (and no adjustment to either Fixed Settlement Rate under this Section 5.04(a) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to each Fixed Settlement Rate shall be made under this Section 5.04(a)(iii) . If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Agreement, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to each Fixed Settlement Rate under this Section 5.04(a) was made, (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, each Fixed Settlemen t Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants that shall have expired or been terminated without exercise by any holders thereof, each Fixed Settlement Rate shall be readjusted as if such rights and warrants had not been issued.
(z) For purposes of this Section 5.04(a)(iii) and Section 5.04(a)(i) and Section 5.04(a)(ii), any dividend or distribution to which this Section 5.04(a)(iii) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Fixed Settlement Rate adjustment required by this Section 5.04(a)(iii) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Fixed Settlement Rate adjustment required by Section 5.04(a)(i) and Section 5.04(a)(ii) with respect to such dividend or distribution shall then be made).
where,
SR0 = the Fixed Settlement Rate in effect at the close of business on the Record Date for Common Stock
SR1 = the Fixed Settlement Rate in effect immediately after the Record Date for Common Stock
SP0 = the Current Market Price as of the Record Date for Common Stock
C = the amount in cash per share the Company distributes to holders of Common Stock or pays in connection with a tender or exchange offer of Common Stock less, in the event of a regular quarterly or annual dividend, the Dividend Threshold Amount
such adjustment to each Fixed Settlement Rate to be effective after the opening of business on the day following the Record Date for Common Stock; provided that if an adjustment is required to be made under this clause as a result of a distribution that is not a regular quarterly dividend, the Dividend Threshold Amount will be deemed to be zero; and provided further that if the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the date fixed for the determination of stockholders entitled to receive such distribution, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon settlement the amount of cash such Holder would have received had such Holder settled each Purchase Contract on the date fixed for such determination as if the Purchase Contract Settlement Date were such date fixed for such determination. The Dividend Threshold Amoun t is subject to adjustment from time to time in a manner inversely proportional to any adjustment made to each Fixed Settlement Rate under this Section 5.04; provided that no adjustment will be made to the Dividend Threshold Amount for any adjustment made pursuant to this clause (iv).
where,
SR0 = the Fixed Settlement Rate in effect at the close of business on the Offer Expiration Date
SR1 = the Fixed Settlement Rate in effect immediately after the Offer Expiration Date
FMV = the Fair Market Value (as determined by the Board of Directors), on the Offer Expiration Date, of the aggregate value of all cash and any other consideration paid or payable for shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Date (the "Purchased Shares")
OS1 = the number of shares of Common Stock outstanding as of the last time tenders or exchanges may be made pursuant to such tender or exchange offer (the "Expiration Time") less any Purchased Shares
OS0 = the number of shares of Common Stock outstanding at the Expiration Time, including any Purchased Shares
SP1 = the average of the Closing Prices of Common Stock for the ten (10) consecutive Trading Days commencing on the Trading Day immediately after the Expiration Time
such adjustment to become effective immediately after the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, each Fixed Settlement Rate shall again be adjusted to be the Fixed Settlement Rate that would then be in effect if such tender or exchange offer had not been made.
each Holder will receive, in lieu of shares of Common Stock, on the Purchase Contract Settlement Date or any Early Settlement Date with respect to each Purchase Contract forming a part thereof, the kind and amount of securities, cash and other property receivable upon such Reorganization Event (without any interest thereon, and without any right to dividends or distribution thereon if such dividends or distributions have a record date that is prior to the Purchase Contract Settlement Date) by a Holder of one share of Common Stock (the "Exchange Property"), multiplied by the applicable Settlement Rate. The kind and amount of Exchange Property will be determined assuming such holder of one Share of Common Stock is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (any such Person, a "Constituent Person"), or an Affiliate of a Constituent Person to the extent such Reorganization Event provides for different treatment of Common Stock held by Affiliates of the Company and non-affiliates. If holders of the Common Stock have the opportunity to elect the kind or amount of securities, cash and other property receivable upon such Reorganization Event, then for the purpose of this Section 5.04(b)(i) the kind and amount of securities, cash and other property receivable upon such Reorganization Event shall be deemed to be the weighted average of the types and amounts of consideration received by the holders of Common Stock that affirmatively make an election.
For purposes of determining the applicable Settlement Rate under this Section 5.04(b)(i) and Section 5.04(b)(ii), the term "Applicable Market Value" shall be deemed to refer to the "Applicable Market Value" of the Exchange Property, and such value shall be determined (A) with respect to any publicly traded securities that compose all or part of the Exchange Property, based on the Closing Price of such securities, (B) in the case of any cash that composes all or part of the Exchange Property, based on the amount of such cash and (C) in the case of any other property that composes all or part of the Exchange Property, based on the value of such property, as determined by a nationally recognized independent investment banking firm retained by the Company for this purpose; provided that prior to the separation of the Rights or any similar stockholder rights from the Common Stock, such Rights or similar stockholder rights shall be deemed to have no value. For the purposes of this pa ragraph only, the term "Closing Price" shall be deemed to refer to the Closing Price, last quoted bid price or mid-point of the last bid and ask prices, as the case may be, of any publicly traded securities that comprise all or part of the Exchange Property and the term "Trading Day" shall be deemed to refer to any publicly traded securities that comprise all or part of the Exchange Property.
In the event of such a Reorganization Event, the Person formed by such consolidation, merger or exchange or the Person that acquires the assets of the Company or, in the event of a liquidation, dissolution or termination of the Company, the Company or a liquidating trust created in connection therewith, shall execute and deliver to the Purchase Contract Agent an agreement supplemental hereto providing that each Holder of an Outstanding Unit shall have the rights provided by this Section 5.04(b)(i). Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be, in the sole judgment of the parties executing such agreement, as nearly equivalent as may be practicable to the adjustments provided for in this Section 5.04. The above provisions of this Section 5.04 shall similarly apply to successive Reorganization Events.
Within five Business Days of the completion of a Cash Merger, the Company shall provide written notice to Holders of such completion of a Cash Merger, which shall specify the deadline for submitting the notice to settle early in cash pursuant to this Section 5.04(b)(ii), the date on which such Cash Merger Early Settlement shall occur (which date shall be at least ten days after the date of such written notice by the Company and shall not be a date falling in a period starting with, but excluding, the second Business Day prior to any Optional Remarketing Period for which the Company has announced one or more Remarketing Dates and ending on, and including, the third Business Day following the last day of such Optional Remarketing Period, but which shall in no event be later than the earlier of 20 days after the date of such written notice by the Company and the two Business Days immediately preceding the first day of the Final Remarketing Period) (the "Cash Merger Early Settlement Date"), t he applicable Settlement Rate and the amount (per share of Common Stock) of cash, securities and other consideration receivable by the Holder, including the amount of Contract Adjustment Payments receivable, upon settlement.
Corporate Units Holders (unless Applicable Ownership Interests in the Treasury Portfolio have replaced Applicable Ownership Interests in Senior Notes as a component of the Corporate Units) and Treasury Units Holders may only effect Cash Merger Early Settlement pursuant to this Section 5.04(b)(ii) in integral multiples of 20 Corporate Units or Treasury Units, as the case may be. If Applicable Ownership Interests in the Treasury Portfolio have replaced Applicable Ownership Interests in Senior Notes as a component of the Corporate Units, Corporate Units Holders may only effect Cash Merger Early Settlement pursuant to this Section 5.04(b)(ii) in multiples of 32,000 Corporate Units. Other than the provisions relating to timing of notice and settlement, which shall be as set forth in the immediately preceding paragraph, the provisions of Section 5.01 shall apply with respect to a Cash Merger Early Settlement pursuant to this Section 5.04(b)(ii).
In order to exercise the right to effect Cash Merger Early Settlement with respect to any Purchase Contracts, the Holder of the Certificate evidencing Units shall deliver, no later than 5:00 p.m. (New York City time) on the third Business Day immediately preceding the Cash Merger Early Settlement Date, such Certificate to the Purchase Contract Agent at the Corporate Trust Office duly endorsed for transfer to the Company or in blank with the form of Election to Settle Early on the reverse thereof duly completed and accompanied by payment (payable to the Company in immediately available funds) in an amount equal to the result of:
Upon receipt of such Certificate and payment of such funds, the Purchase Contract Agent shall pay the Company from such funds the related Purchase Price pursuant to the terms of the related Purchase Contracts, and notify the Collateral Agent that all the conditions necessary for a Cash Merger Early Settlement by a Holder have been satisfied pursuant to which the Purchase Contract Agent has received from such Holder, and paid to the Company as confirmed in writing by the Company, the related Purchase Price.
Upon receipt by the Collateral Agent of the notice from the Purchase Contract Agent set forth in the immediately preceding paragraph, the Collateral Agent shall release from the Pledge, (1) the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes or the Pledged Applicable Ownership Interests in the Treasury Portfolio, in the case of a Holder of Corporate Units or (2) the Pledged Treasury Securities, in the case of a Holder of Treasury Units, in each case with a Value equal to the product of (x) the Stated Amount and (y) the number of Purchase Contracts as to which such Holder has elected to effect Cash Merger Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable Ownership Interests in the Treasury Portfolio or Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes or Pledged Treasury Securities, as the case may be, to the Purchase Contract Agent for distribution to such Holder, in each case free and cl ear of the Pledge created hereby.
If a Holder properly effects an effective Cash Merger Early Settlement in accordance with the provisions of this Section 5.04(b)(ii), the Company will deliver (or will cause the Collateral Agent to deliver) to the Holder on the Cash Merger Early Settlement Date:
The Corporate Units or the Treasury Units of the Holders who do not elect Cash Merger Early Settlement in accordance with the foregoing will continue to remain outstanding and be subject to settlement on the Purchase Contract Settlement Date in accordance with the terms hereof.
The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder, including, without limitation, the rights of the Holders to receive and the obligation of the Company to pay any Contract Adjustment Payments (including any accrued and unpaid Contract Adjustment Payments), and the rights and obligations of Holders to purchase Common Stock, shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Purchase Contract Agent or the Company, if, prior to or on the Purchase Contract Settlement Date, a Termination Event shall have occurred.
Upon and after the occurrence of a Termination Event, the Units shall thereafter represent the right to receive the Senior Notes underlying the Applicable Ownership Interests in Senior Notes, the Treasury Securities or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, forming part of such Units, in accordance with the provisions of Section 3.15 hereof. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two Business Days thereafter give written notice to the Purchase Contract Agent, the Collateral Agent and the Holders, at their addresses as they appear in the Security Register.
In the case of Book-Entry Interests, each Beneficial Owner electing Early Settlement must deliver the Early Settlement Amount to the Purchase Contract Agent along with a facsimile of the Election to Settle Early form duly completed, make book-entry transfer of such Book-Entry Interests and comply with the applicable procedures of the Depositary by the applicable time set forth above in this Section 5.07.
Except as provided in Section 5.10(d), no payment shall be made upon Early Settlement of any Purchase Contract on account of any Contract Adjustment Payments accrued on such Purchase Contract or on account of any dividends on the Common Stock issued upon such Early Settlement. If the foregoing requirements are first satisfied with respect to Purchase Contracts underlying any Units at or prior to 5:00 p.m. (New York City time) on a Business Day, such day shall be the "Early Settlement Date" with respect to such Units and if such requirements are first satisfied after 5:00 p.m. (New York City time) on a Business Day or on a day that is not a Business Day, the Early Settlement Date with respect to such Units shall be the next succeeding Business Day.
Upon the receipt of such Certificate, Election to Settle Early form duly completed and Early Settlement Amount from the Holder, the Purchase Contract Agent shall pay to the Company such Early Settlement Amount, the receipt of which payment the Company shall confirm in writing. The Purchase Contract Agent shall then notify the Collateral Agent that (A) such Holder has elected to effect an Early Settlement, which notice shall set forth the number of such Purchase Contracts as to which such Holder has elected to effect Early Settlement, (B) the Purchase Contract Agent has received from such Holder, and paid to the Company as confirmed in writing by the Company, the related Early Settlement Amount and (C) all conditions to such Early Settlement expressly set forth in this Agreement have been satisfied.
Upon receipt by the Collateral Agent of the notice from the Purchase Contract Agent set forth in the preceding paragraph, the Collateral Agent shall release from the Pledge, (1) in the case of a Holder of Corporate Units, the Senior Notes underlying the Pledged Applicable Ownership Interest in Senior Notes, or the Pledged Applicable Ownership Interests in the Treasury Portfolio, as the case may be, relating to the Purchase Contracts to which Early Settlement is effected, or (2) in the case of a Holder of Treasury Units, Pledged Treasury Securities, in each case with a Value equal to the product of (x) the Stated Amount times (y) the number of Purchase Contracts as to which such Holder has elected to effect Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable Ownership Interests in the Treasury Portfolio or Senior Notes underlying such Pledged Applicable Ownership Interests in Senior Notes or Pledged Treasury Securities, as the case may be, to the Purchas e Contract Agent for distribution to such Holder, in each case free and clear of the Pledge created hereby.
Holders of Corporate Units and Treasury Units may only effect Early Settlement pursuant to this Section 5.07 in integral multiples of 20 Treasury Units. If Applicable Ownership Interests in the Treasury Portfolio have replaced Applicable Ownership Interests in Senior Notes as a component of the Corporate Units, Corporate Units Holders may only effect Early Settlement pursuant to this Section 5.07 in integral multiples of 32,000 Corporate Units.
Upon Early Settlement of the Purchase Contracts, the rights of the Holders to receive and the obligation of the Company to pay any Contract Adjustment Payments (including any accrued and unpaid Contract Adjustment Payments) with respect to such Purchase Contracts shall immediately and automatically terminate, except as provided in Section 5.10(d).
Subject to the provisions of Section 7.01:
The Company agrees:
The provisions of this Section shall survive the resignation and removal of the Purchase Contract Agent and the termination of this Agreement.
then, in any such case, (i) the Company by a Board Resolution may remove the Purchase Contract Agent, or (ii) any Holder who has been a bona fide Holder of a Unit for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Purchase Contract Agent and the appointment of a successor Purchase Contract Agent.
provided that if any amendment or proposal referred to above would adversely affect only the Corporate Units or the Treasury Units, then only the affected class of Holders as of the record date for the Holders entitled to vote thereon will be entitled to vote on such amendment or proposal, and such amendment or proposal shall not be effective except with the consent of each such Holder affected thereby; and provided, further, that the unanimous consent of the Holders of each outstanding Purchase Contract of such class affected thereby shall be required to approve any amendment or proposal specified in clauses (a) through (f) of this Section 8.02.
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental agreement, but it shall be sufficient if such Act shall approve the substance thereof.
CONSOLIDATION, MERGER, Sale, CONVEYANCE, TRANSFER OR Disposition
In case of any such merger, consolidation, sale, assignment, transfer, or disposition such change in phraseology and form (but not in substance) may be made in the Certificates evidencing Units thereafter to be issued as may be appropriate.
The Company may also from time to time designate one or more other offices or agencies where Certificates may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Comp any of its obligation to maintain an office or agency in the Borough of Manhattan, City of New York, New York for such purposes. The Company will give prompt written notice to the Purchase Contract Agent of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates as the place of payment for the Units the Corporate Trust Office and appoints the Purchase Contract Agent at its Corporate Trust Office as paying agent in such city.
REPRESENTATIONS AND WARRANTIES TO
COLLATERAL AGENT; HOLDER COVENANTS
THE COLLATERAL AGENT, THE CUSTODIAL AGENT
AND THE SECURITIES INTERMEDIARY
It is hereby agreed as follows:
Subject to the foregoing, during the term of this Agreement, the Collateral Agent, the Custodial Agent and the Securities Intermediary shall take all reasonable action in connection with the safekeeping and preservation of the Collateral hereunder as determined by industry standards.
The Collateral Agent, the Custodial Agent and the Securities Intermediary shall only be responsible for transferring money, securities or other property in accordance with the terms herein to the extent that such money, securities or other property is credited to the Collateral Account.
No provision of this Agreement shall require the Collateral Agent, the Custodial Agent or the Securities Intermediary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or the exercise of any of its rights or powers hereunder. In no event shall the Collateral Agent, the Custodial Agent or the Securities Intermediary be liable for any amount in excess of the Value of the Collateral.
In each case that the Collateral Agent, the Custodial Agent or the Securities Intermediary may or is required hereunder to take any action, including without limitation to make any determination or judgment, to give consents, to exercise rights, powers or remedies, to release or sell Collateral or otherwise to act hereunder, the Collateral Agent, the Custodial Agent or Securities Intermediary may seek direction from the Company. The Collateral Agent, the Custodial Agent or Securities Intermediary shall not be liable with respect to any action taken or omitted to be taken by it in accor dance with the direction from the Company. Unless direction or otherwise is expressly provided herein, if the Collateral Agent, the Custodial Agent or the Securities Intermediary shall request direction from the Company with respect to any action, the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be entitled to refrain from such action unless and until such agent shall have received direction from the Company, and the agent shall not incur liability to any Person by reason of so refraining.
The provisions of this Section and Section 15.14 shall survive the resignation or removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary and the termination of this Agreement.
The Collateral Agent, the Custodial Agent and the Securities Intermediary may in addition elect to commence an interpleader action or seek other judicial relief or orders as the Collateral Agent, the Custodial Agent or the Securities Intermediary may deem necessary. Notwithstanding anything contained herein to the contrary, none of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be required to take any action that is in its opinion contrary to law or to the terms of this Agreement, or which would in its opinion subject it or any of its officers, employees or directors to liability.
The Purchase Contract Agent shall promptly notify the Company upon the transmission of notice as contemplated by clause (iii) of this Section 15.10(a) and any removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary pursuant to clause (iii) of this Section 15.10. Upon any such resignation or removal, the Company shall have the right to appoint a successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be. If no successor Collateral Agent, Custodial Agent or Securities Intermediary shall have been so appointed and shall have accepted such appointment within 45 days after the retiring Collateral Agent's, Custodial Agent's or Securities Intermediary's giving of notice of resignation or the Company's or the Purchase Contract Agent's giving notice of such removal, then the retiring or removed Collateral Agent, Custodial Agent or Securities Intermediary may petition any court of competent jurisdiction, at the expense of the Company, for the appointment o f a successor Collateral Agent, Custodial Agent or Securities Intermediary. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall each be a bank or a national banking association which has an office (or an agency office) in New York City with a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Collateral Agent, Custodial Agent or Securities Intermediary hereunder by a successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, such successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, and the retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, shall take all appropriate action, subject to payment of any amounts then due and payable to it h ereunder, to transfer any money and property held by it hereunder (including the Collateral) to such successor. The retiring Collateral Agent, Custodial Agent or Securities Intermediary shall, upon such succession, be discharged from its duties and obligations as Collateral Agent, Custodial Agent or Securities Intermediary hereunder. After any retiring Collateral Agent's, Custodial Agent's or Securities Intermediary's resignation hereunder as Collateral Agent, Custodial Agent or Securities Intermediary, the provisions of this Article 15 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Collateral Agent, the Custodial Agent or the Securities Intermediary. Any resignation or removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary hereunder, at a time when such Person is also acting as the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, shall be deemed for all pu rposes of this Agreement as the simultaneous resignation or removal of the Collateral Agent, the Securities Intermediary or the Custodial Agent, as the case may be.
The rights of Holders to communicate with other Holders with respect to their rights under this Agreement or under the Units, and the corresponding rights and privileges of the Purchase Contract Agent, shall be as provided by the TIA.
Every Holder of Units, by receiving and holding the same, agrees with the Company and the Purchase Contract Agent that neither the Company nor the Purchase Contract Agent nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the TIA.
A copy of each such report shall, at the time of such transmission to Holders, be filed by the Purchase Contract Agent with each stock exchange upon which any Units are listed, with the Securities and Exchange Commission and with the Company. The Company will promptly notify the Purchase Contract Agent when any Units are listed on any stock exchange.
Delivery of such information, documents and reports to the Purchase Contract Agent is for informational purposes only and the Purchase Contract Agent's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (a s to which the Purchase Contract Agent is entitled to rely exclusively on Officer's Certificates).
Upon such waiver, any such default shall cease to exist, and any default by the Company arising therefrom shall be deemed to have been cured, for every purpose of this Agreement, but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
[SIGNATURES ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
ENTERGY CORPORATION |
THE BANK OF NEW YORK, |
|||
By: |
/s/ Steven C. McNeal |
By: |
/s/ Robert A. Massimillo |
|
Name: Steven C. McNeal |
Name: Robert A. Massimillo |
|||
Address for Notices: |
Address for Notices: |
|||
Entergy Corporation |
The Bank of New York |
|||
JPMORGAN CHASE BANK, N.A. |
||||
By: |
/s/ James D. Heaney |
|||
Name: James D. Heaney |
||||
Address for Notices: Worldwide Securities Services |
||||
Telecopier No.: (212) 623-6167 |
EXHIBIT A
(FORM OF FACE OF CORPORATE UNITS CERTIFICATE)
[For inclusion in Global Certificates only - THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AND PLEDGE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF CEDE & CO., AS NOMINEE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY. THIS CERTIFICATE IS EXCHANGEABLE FOR CERTIFICATES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AND PLEDGE AGREEMENT AND NO TRANSFER OF THIS CERTIFICATE (OTHER THAN A TRANSFER OF THIS CERTIFICATE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
No. R- |
CUSIP No. |
|
Number of Corporate Units: |
ISIN No. ________________ |
ENTERGY CORPORATION
Corporate Units
This Corporate Units Certificate certifies that is the registered Holder of the number of Corporate Units set forth above [For inclusion in Global Certificates only - or such other number of Corporate Units reflected in the Schedule of Increases or Decreases in Global Certificate attached hereto]. Each Corporate Unit consists of (i) either (a) an Applicable Ownership Interest in Senior Notes, subject to the Pledge thereof by such Holder pursuant to the Purchase Contract and Pledge Agreement, or (b) upon the occurrence of a Special Event Redemption or a Successful Optional Remarketing prior to the Purchase Contract Settlement Date, the Applicable Ownership Interest in the Treasury Portfolio, subject to the pledge of the Applicable Ownership Interest in the Treasury Portfolio (as specified in clause (i) of the definition of such term) by such Holder pur suant to the Purchase Contract and Pledge Agreement, and (ii) the rights and obligations of the Holder under one Purchase Contract with the Company.
All capitalized terms used herein without definition herein and which are defined in the Purchase Contract and Pledge Agreement (as defined on the reverse hereof) have the meaning set forth therein.
Pursuant to the Purchase Contract and Pledge Agreement, the Applicable Ownership Interest in Senior Notes or the Applicable Ownership Interest in the Treasury Portfolio (as specified in clause (i) of the definition of such term), as the case may be, constituting part of each Corporate Unit evidenced hereby have been pledged to the Collateral Agent, for the benefit of the Company, to secure the obligations of the Holder under the Purchase Contract comprising part of such Corporate Unit.
All payments of the principal amount with respect to the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes or all payments with respect to the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term), as the case may be, or payments of interest on the Pledged Applicable Ownership Interests in Senior Notes or distributions with respect to the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (ii) of the definition of such term), as the case may be, constituting part of the Corporate Units shall be paid on the dates and in the manner set forth in the Purchase Contract and Pledge Agreement. Interest on the Senior Notes underlying the Applicable Ownership Interests in Senior Notes and distributions on the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (ii) of the definition of such term), as the case may be, forming part of the Corporate Units evidenced hereby, which are payable on each Payment Date, shall, subject to receipt thereof by the Purchase Contract Agent, be paid to the Person in whose name this Corporate Units Certificate (or a Predecessor Corporate Units Certificate) is registered at the close of business on the Record Date for such Payment Date.
The Company shall pay, on each Payment Date, in respect of each Purchase Contract forming part of a Corporate Unit evidenced hereby, an amount (the "Contract Adjustment Payments") equal to 1.875% per year of the Stated Amount for the period from and including the immediately preceding Payment Date on which Contract Adjustment Payments were paid (or if none, December 20, 2005) to but excluding such Payment Date. Such Contract Adjustment Payments shall be payable to the Person in whose name this Corporate Units Certificate is registered at the close of business on the Record Date for such Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this Corporate Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date, at a Purchase Price equal to the Stated Amount, a number of newly issued shares of Common Stock of the Company, equal to the Settlement Rate, unless on or prior to the Purchase Contract Settlement Date there shall have occurred a Termination Event, an Early Settlement or a Cash Merger Early Settlement with respect to such Purchase Contract, all as provided in the Purchase Contract and Pledge Agreement. The Purchase Price for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby, if not paid earlier, shall be paid on the Purchase Contract Settlement Date by application of payment received in the Final Remarketing of the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes equal to the principal amount thereof or the proceeds of the Pledged Applicable Ownership Interes ts in the Treasury Portfolio (as specified in clause (i) of the definition of such term), as the case may be, pledged to secure the obligations under such Purchase Contract of the Holder of the Corporate Units of which such Purchase Contract is a part.
Distributions on the Applicable Ownership Interests in Senior Notes constituting interest and distributions on the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (ii) of the definition of such term) and the Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in New York City, except that all payments with respect to Global Certificates will be made by wire transfer of immediately available funds to the Depositary. If the book-entry system for the Corporate Units has been terminated, the Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person's address as it appears on the Security Register, or by wire transfer to the account designated by such Person by prior written notice to the Purchase Contract Agent, given at least ten calendar days prior to the Payment Date.
Each Purchase Contract evidenced hereby obligates the holder to agree, for United States federal, state and local income and franchise tax purposes, to (i) treat its acquisition of the Corporate Units as an acquisition of the Applicable Ownership Interest in Senior Notes and Purchase Contract constituting each Corporate Unit, (ii) treat the Applicable Ownership Interest in Senior Notes as indebtedness of the Company and (iii) treat itself as the owner of the applicable interests in the Collateral Account, including the Senior Notes underlying the Applicable Ownership Interests in the Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term).
Reference is hereby made to the further provisions set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Purchase Contract Agent by manual signature, this Corporate Units Certificate shall not be entitled to any benefit under the Purchase Contract and Pledge Agreement or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company and the Holder specified above have caused this instrument to be duly executed.
ENTERGY CORPORATION |
||
By: |
||
Name: |
||
Title: |
||
HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts) |
||
By: |
THE BANK OF NEW YORK, not individually but solely as attorney-in-fact of such Holder |
|
By: |
||
Name: |
||
Title: |
||
DATED: |
CERTIFICATE OF AUTHENTICATION
OF PURCHASE CONTRACT AGENT
This is one of the Corporate Units Certificates referred to in the within mentioned Purchase Contract and Pledge Agreement.
THE BANK OF NEW YORK, |
||
By: |
||
Authorized Signatory |
||
DATED: |
(REVERSE OF CORPORATE UNITS CERTIFICATE)
Each Purchase Contract evidenced hereby is governed by a Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (as may be supplemented from time to time, the "Purchase Contract and Pledge Agreement"), between the Company and The Bank of New York, as Purchase Contract Agent (including its successors thereunder, the "Purchase Contract Agent"), and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary (including its successors thereunder, the "Collateral Agent"), to which Purchase Contract and Pledge Agreement and supplemental agreements thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Purchase Contract Agent, the Collateral Agent, the Company, and the Holders and of the terms upon which the Corporate Units Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this Corporate Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to the Stated Amount, a number of shares of Common Stock equal to the Settlement Rate, unless an Early Settlement, a Cash Merger Early Settlement or a Termination Event with respect to the Units of which such Purchase Contract is a part shall have occurred. The Settlement Rate is subject to adjustment as described in the Purchase Contract and Pledge Agreement.
No fractional shares of Common Stock will be issued upon settlement of Purchase Contracts, as provided in Section 5.08 of the Purchase Contract and Pledge Agreement.
Each Purchase Contract evidenced hereby that is settled through Early Settlement or Cash Merger Early Settlement shall obligate the Holder of the related Corporate Units to purchase at the Purchase Price, and the Company to sell, a number of newly issued shares of Common Stock equal to the Minimum Settlement Rate (in the case of an Early Settlement) or applicable Settlement Rate (in the case of a Cash Merger Early Settlement).
In accordance with the terms of the Purchase Contract and Pledge Agreement, unless a Termination Event shall have occurred, the Holder of this Corporate Units Certificate shall pay the Purchase Price for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby by effecting a Cash Settlement, an Early Settlement or, if applicable, a Cash Merger Early Settlement or from the proceeds of the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) or of a Final Remarketing of the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes. A Holder of Corporate Units who, (1) unless a Special Event Redemption or Successful Optional Remarketing has occurred, does not, on or prior to 5:00 p.m. (New York City time) on the Business Day immediately preceding the first day of the Final Remarketing Period, make an effective Cash Settlement in the manner provided in the Purchase Contract and Pledge Agree ment or (2) on or prior to 5:00 p.m. (New York City time) on the second Business Day immediately preceding the first day of the Final Remarketing Period (in the case of Corporate Units, unless a Special Event Redemption or Successful Optional Remarketing has occurred), or the second Business Day immediately preceding the Purchase Contract Settlement Date (in the case of Corporate Units after the occurrence of a Special Event Redemption or Successful Optional Remarketing), does not make an effective Early Settlement, shall pay the Purchase Price for the shares of Common Stock to be delivered under the related Purchase Contract from the proceeds of the sale of the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes held by the Collateral Agent in the Final Remarketing unless the Holder has previously made a Cash Merger Early Settlement. If the Treasury Portfolio has replaced the Senior Notes as a component of Corporate Units, a Holder of Corporate Units shall pay the Purchase Pr ice for the shares of Common Stock to be delivered under the related Purchase Contract from the proceeds at maturity of the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term.)
As provided in the Purchase Contract and Pledge Agreement, upon the occurrence of a Failed Final Remarketing, as of the Purchase Contract Settlement Date, each Holder of any Pledged Applicable Interests in Senior Notes, unless such Holder has elected settlement with separate cash and delivered such separate cash in accordance with Section 5.02(c)(iii) of the Purchase Contract and Pledge Agreement, shall be deemed to have exercised such Holder's Put Right with respect to the Senior Notes underlying such Applicable Ownership Interests in Senior Notes and to have elected to apply a portion of the Proceeds of the Put Right equal to the aggregate Purchase Price against such Holder's obligation to pay the aggregate Purchase Price for the shares of Common Stock to be issued under the related Purchase Contracts in full satisfaction of such Holders' obligations under such Purchase Contracts, and any accrued and unpaid interest on the Senior Notes attributable to such Pledged Applicable Ownership Interests in Senio r Notes will become payable by the Company to the Holder of this Corporate Units Certificate in the manner provided for in the Purchase Contract and Pledge Agreement.
The Company shall not be obligated to issue any shares of Common Stock in respect of a Purchase Contract or deliver any certificates therefor to the Holder unless it shall have received payment of the aggregate Purchase Price for the shares of Common Stock to be purchased thereunder in the manner set forth in the Purchase Contract and Pledge Agreement.
Each Purchase Contract evidenced hereby and all obligations and rights of the Company and the Holder thereunder shall terminate if a Termination Event shall occur. Upon the occurrence of a Termination Event, the Company shall give written notice to the Purchase Contract Agent and to the Holders, at their addresses as they appear in the Security Register. Upon and after the occurrence of a Termination Event, the Collateral Agent shall release the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) forming a part of each Corporate Unit from the Pledge. A Corporate Unit shall thereafter represent the right to receive the Senior Note underlying the Applicable Ownership Interest in the Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio forming a part of such Corporate Units in accordance with the terms of the Purchase Contract an d Pledge Agreement.
Under the terms of the Purchase Contract and Pledge Agreement, the Purchase Contract Agent will be entitled to exercise the voting and any other consensual rights pertaining to the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes, but only to the extent instructed in writing by the Holders. Upon receipt of notice of any meeting at which holders of Senior Notes are entitled to vote or upon any solicitation of consents, waivers or proxies of holders of Senior Notes, the Purchase Contract Agent shall, as soon as practicable thereafter, mail, first class, postage pre-paid, to the Corporate Units Holders the notice required by the Purchase Contract and Pledge Agreement.
Upon the occurrence of a Special Event Redemption, the Collateral Agent shall surrender the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes against delivery of an amount equal to the aggregate Redemption Price of such Senior Notes and shall deposit the funds in the Collateral Account in exchange for such Senior Notes. Thereafter, the Collateral Agent shall cause the Securities Intermediary to apply an amount equal to the aggregate Redemption Amount of such funds to purchase, on behalf of the Holders of Corporate Units, the Treasury Portfolio.
Following the occurrence of a Special Event Redemption prior to the Purchase Contract Settlement Date, the Collateral Agent shall have such security interest rights with respect to the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) as the Collateral Agent had in respect of Applicable Ownership Interests in Senior Notes and the underlying Senior Notes, as provided in the Purchase Contract and Pledge Agreement and any reference herein to the Senior Notes or Applicable Ownership Interests in Senior Notes shall be deemed to be a reference to the Treasury Portfolio or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be.
Upon the occurrence of a Successful Optional Remarketing and receipt in the Collateral Account of the proceeds thereof, the Collateral Agent shall cause the Securities Intermediary to apply an amount equal to the Treasury Portfolio Purchase Price to purchase, on behalf of the Holders of Corporate Units, the Treasury Portfolio.
Following the occurrence of a Successful Optional Remarketing, the Collateral Agent shall have such security interest rights with respect to the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) as the Collateral Agent had in respect of Applicable Ownership Interests in Senior Notes and the underlying Senior Notes, as provided in the Purchase Contract and Pledge Agreement and any reference herein to the Senior Notes or Applicable Ownership Interests in Senior Notes shall be deemed to be a reference to the Treasury Portfolio or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be.
The Corporate Units Certificates are issuable only in registered form and only in denominations of a single Corporate Unit and any integral multiple thereof. The transfer of any Corporate Units Certificate will be registered and Corporate Units Certificates may be exchanged as provided in the Purchase Contract and Pledge Agreement. A Holder who elects to substitute a Treasury Security for the Senior Note underlying the Applicable Ownership Interests in Senior Notes or Applicable Ownership Interests in the Treasury Portfolio, as the case may be, thereby creating Treasury Units, shall be responsible for any fees or expenses payable in connection therewith. Except as provided in the Purchase Contract and Pledge Agreement, such Corporate Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Corporate Unit in respect of the Applicable Ownership Interest in Senior Notes, or Applicable Ownership Interest in the Treasury Portfolio, as the case may be, and P urchase Contract constituting such Corporate Units may be transferred and exchanged only as a Corporate Unit.
Subject to, and in compliance with, the conditions and terms set forth in the Purchase Contract and Pledge Agreement, the Holder of Corporate Units may effect a Collateral Substitution. From and after such Collateral Substitution, each Unit for which Pledged Treasury Securities secure the Holder's obligation under the Purchase Contract shall be referred to as a "Treasury Unit". A Holder may make such Collateral Substitution only in integral multiples of 20 Corporate Units for 20 Treasury Units. If Applicable Ownership Interests in the Treasury Portfolio have replaced the Applicable Ownership Interests in Senior Notes as a component of the Corporate Units as a result of a Special Event Redemption, a Holder may substitute Treasury Securities for the Applicable Ownership Interests in the Treasury Portfolio only in integral multiples of 32,000 Corporate Units. No Collateral Substitution is permitted following a Successful Optional Remarketing.
Subject to and upon compliance with the provisions of the Purchase Contract and Pledge Agreement, at the option of the Holder thereof, Purchase Contracts underlying Units may be settled early by effecting an Early Settlement as provided in the Purchase Contract and Pledge Agreement in integral multiples of 20 Corporate Units, or if Applicable Ownership Interests in the Treasury Portfolio have replaced the Applicable Ownership Interests in Senior Notes as a component of the Corporate Units, in integral multiples of 32,000 Corporate Units.
Following March 1, 2006, upon Early Settlement of Purchase Contracts by a Holder of the related Units, the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) underlying such Units shall be released from the Pledge as provided in the Purchase Contract and Pledge Agreement and the Holder shall be entitled to receive a number of shares of Common Stock on account of each Purchase Contract forming part of a Corporate Unit as to which Early Settlement is effected equal to the Minimum Settlement Rate.
Following March 1, 2006, upon the occurrence of a Cash Merger, a Holder of Corporate Units may effect Cash Merger Early Settlement of the Purchase Contracts underlying such Corporate Units pursuant to the terms of the Purchase Contract and Pledge Agreement in integral multiples of 20 Corporate Units, or if the Applicable Ownership Interests in the Treasury Portfolio have replaced the Applicable Ownership Interests in Senior Notes as a component of the Corporate Units, in integral multiples of 32,000 Corporate Units. Upon Cash Merger Early Settlement of Purchase Contracts by a Holder of the related Corporate Units, the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) underlying such Corporate Units shall be released from the Pledge as provided in the Purchase Contract and Pledge Agreement and the Holder shall be entitled to receive a number of shares of Common Stock on account of each Purchase Contract forming part of a Corporate Unit as to which Cash Merger Early Settlement is effected equal to the applicable Settlement Rate.
Upon registration of transfer of this Corporate Units Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee, except as may be required by the Purchase Contract Agent pursuant to the Purchase Contract and Pledge Agreement), under the terms of the Purchase Contract and Pledge Agreement and the Purchase Contracts evidenced hereby and the transferor shall be released from the obligations under the Purchase Contracts evidenced by this Corporate Units Certificate. The Company covenants and agrees, and the Holder, by its acceptance hereof, likewise covenants and agrees, to be bound by the provisions of this paragraph.
The Holder of this Corporate Units Certificate, by its acceptance hereof, authorizes the Purchase Contract Agent to enter into and perform the related Purchase Contracts forming part of the Corporate Units evidenced hereby on its behalf as its attorney-in-fact, expressly withholds any consent to the assumption (i.e., affirmance) of the Purchase Contracts by the Company or its trustee in the event that the Company becomes the subject of a case under the Bankruptcy Code, agrees to be bound by the terms and provisions thereof, covenants and agrees to perform its obligations under such Purchase Contracts, consents to the provisions of the Purchase Contract and Pledge Agreement, authorizes the Purchase Contract Agent to enter into and perform the Purchase Contract and Pledge Agreement on its behalf as its attorney-in-fact, and consents to the Pledge of the Applicable Ownership Interests in Senior Notes and the underlying Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term), as the case may be, underlying this Corporate Units Certificate pursuant to the Purchase Contract and Pledge Agreement. The Holder further covenants and agrees that, to the extent and in the manner provided in the Purchase Contract and Pledge Agreement, but subject to the terms thereof, any payments with respect the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes (other than interest payments thereon) or the Proceeds of the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term), as the case may be, on the Purchase Contract Settlement Date equal to the aggregate Purchase Price for the related Purchase Contracts shall be paid by the Collateral Agent to the Company in satisfaction of such Holder's obligations under the related Purchase Contracts and such Holder shall acquire no right, title or interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract and Pledge Agreement may be amended with the consent of the Holders of a majority of the Purchase Contracts.
The Purchase Contracts shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflicts of law provisions thereof to the extent a different law would govern as a result.
The Purchase Contracts shall not, prior to the settlement thereof, entitle the Holder to any of the rights of a holder of shares of Common Stock.
Prior to due presentment of this Certificate for registration of transfer, the Company, the Purchase Contract Agent and its Affiliates and any agent of the Company or the Purchase Contract Agent may treat the Person in whose name this Corporate Units Certificate is registered as the owner of the Corporate Units evidenced hereby for the purpose of receiving payments of interest payable on the Senior Notes underlying the Applicable Ownership Interests in Senior Notes and payments of Contract Adjustment Payments (subject to any applicable record date), performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any payments in respect thereof be overdue and notwithstanding any notice to the contrary, and neither the Company, the Purchase Contract Agent nor any such agent shall be affected by notice to the contrary.
A copy of the Purchase Contract and Pledge Agreement is available for inspection at the offices of the Purchase Contract Agent during regular business hours.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM: as tenants in common
UNIF GIFT MIN ACT:
Custodian
(cust) (minor)
Under Uniform Gifts to Minors Act of
TENANT: as tenants by the entireties
JT TEN: as joint tenants with right of survivorship and not as tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
 
;
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee)
 
;
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Corporate Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing attorney , to transfer said Corporate Units Certificates on the books of Entergy Corporation, with full power of substitution in the premises.
Dated: Signature
NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Corporate Units Certificates in every particular, without alteration or enlargement or any change whatsoever.
Signature Guarantee:
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common Stock deliverable upon settlement on or after the Purchase Contract Settlement Date of the Purchase Contracts underlying the number of Corporate Units evidenced by this Corporate Units Certificate be registered in the name of, and delivered, together with a check in payment for any fractional share, to the undersigned at the address indicated below unless a different name and address have been indicated below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated: (if assigned to another person)
REGISTERED HOLDER |
||
If shares are to be registered in the name of and delivered to a Person other than the Holder, please (i) print such Person's name and address and (ii) provide a guarantee of your signature: |
Please print name and address of Registered Holder: |
|
Name |
||
Name |
||
Address |
||
Address |
||
Social Security or other Taxpayer Identification Number, if any | ||
Signature | ||
Signature Guarantee: |
ELECTION TO SETTLE EARLY/CASH MERGER EARLY SETTLEMENT
The undersigned Holder of this Corporate Units Certificate hereby irrevocably exercises the option to effect [Early Settlement] [Cash Merger Early Settlement] in accordance with the terms of the Purchase Contract and Pledge Agreement with respect to the Purchase Contracts underlying the number of Corporate Units evidenced by this Corporate Units Certificate specified below. The option to effect [Early Settlement] [Cash Merger Early Settlement] may be exercised only with respect to Purchase Contracts underlying Corporate Units in multiples of 20 Corporate Units or an integral multiple thereof; provided that if Applicable Ownership Interests in the Treasury Portfolio have replaced Applicable Ownership Interests in the Senior Notes as a component of the Corporate Units, Corporate Units Holders may only effect [Early Settlement] [Cash Merger Early Settlement] in multiples of 32,000 Corporate Units. The undersigned Holder directs that a certificate for shares of Common Stock or other securities delive rable upon such [Early Settlement] [Cash Merger Early Settlement] be registered in the name of, and delivered, together with a check in payment for any fractional share and any Corporate Units Certificate representing any Corporate Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is not effected, to the undersigned at the address indicated below unless a different name and address have been indicated below. Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, deliverable upon such [Early Settlement] [Cash Merger Early Settlement] will be transferred in accordance with the transfer instructions set forth below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated: Signature
Signature Guarantee:
Number of Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is being elected:
If shares of Common Stock or Corporate Units Certificates are to be registered in the name of and delivered to and Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, are to be transferred to a Person other than the Holder, please print such Person's name and address: |
REGISTERED HOLDER |
|
Please print name and address of Registered Holder: |
||
Name |
||
Name |
||
Address |
||
Address |
||
Social Security or other Taxpayer Identification Number, if any |
||
Transfer Instructions for Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, transferable upon [Early Settlement] [Cash Merger Early Settlement]:
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The initial number of Corporate Units evidenced by this Global Certificate is _______. The following increases or decreases in this Global Certificate have been made:
Date |
Amount of increase |
Amount of decrease |
Number of Corporate |
Signature of |
||||
EXHIBIT B
(FORM OF FACE OF TREASURY UNITS CERTIFICATE)
[For inclusion in Global Certificate only - THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AND PLEDGE AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF CEDE & CO., AS NOMINEE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY. THIS CERTIFICATE IS EXCHANGEABLE FOR CERTIFICATES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AND PLEDGE AGREEMENT AND NO TRANSFER OF THIS CERTIFICATE (OTHER THAN A TRANSFER OF THIS CERTIFICATE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
No. TR- |
CUSIP No. |
|
Number of Treasury Units: 0 |
ISIN No. _________________ |
ENTERGY CORPORATION
Treasury Units
This Treasury Units Certificate certifies that is the registered Holder of the number of Treasury Units set forth above [For inclusion in Global Certificates only - or such other number of Treasury Units reflected in the Schedule of Increases or Decreases in Global Certificate attached hereto]. Each Treasury Unit consists of (i) a 1/20 undivided beneficial ownership interest in a Treasury Security having a principal amount at maturity equal to $1,000, subject to the Pledge of such Treasury Security by such Holder pursuant to the Purchase Contract and Pledge Agreement, and (ii) the rights and obligations of the Holder under one Purchase Contract with the Company.
All capitalized terms used herein that are defined in the Purchase Contract and Pledge Agreement (as defined on the reverse hereof) have the meaning set forth therein.
Pursuant to the Purchase Contract and Pledge Agreement, the Treasury Securities underlying each Treasury Unit evidenced hereby have been pledged to the Collateral Agent, for the benefit of the Company, to secure the obligations of the Holder under the Purchase Contract comprising part of such Treasury Unit.
The Company shall pay, on each Payment Date, in respect of each Purchase Contract forming part of a Treasury Unit evidenced hereby, an amount (the "Contract Adjustment Payments") equal to 1.875% per year of the Stated Amount. Such Contract Adjustment Payments shall be payable to the Person in whose name this Treasury Units Certificate is registered at the close of business on the Record Date for such Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this Treasury Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date, at a Purchase Price equal to the Stated Amount, a number of newly issued shares of Common Stock of the Company, equal to the Settlement Rate, unless prior to or on the Purchase Contract Settlement Date there shall have occurred a Termination Event, an Early Settlement or a Cash Merger Early Settlement with respect to such Purchase Contract, all as provided in the Purchase Contract and Pledge Agreement. The Purchase Price for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby, if not paid earlier, shall be paid on the Purchase Contract Settlement Date by application of the proceeds from the Treasury Securities at maturity pledged to secure the obligations under such Purchase Contract of the Holder of the Treasury Units of which such Purchase Contract is a part.
Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in New York City, except that Contract Adjustment Payments with respect to Global Certificates will be made by wire transfer of immediately available funds to the Depositary. If the book-entry system for the Corporate Units has been terminated, the Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person's address as it appears on the Security Register, or by wire transfer to the account designated by such Person by prior written notice to the Purchase Contract Agent, given at least ten calendar days prior to the Payment Date.
Each Purchase Contract evidenced hereby obligates the holder to agree, for United States federal, state and local income and franchise tax purposes, to (i) treat its acquisition of the Treasury Units as an acquisition of the Treasury Security and Purchase Contracts constituting the Treasury Units and (ii) treat itself as the owner of the applicable interest in the Treasury Securities.
Reference is hereby made to the further provisions set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Purchase Contract Agent by manual signature, this Treasury Units Certificate shall not be entitled to any benefit under Purchase Contract and Pledge Agreement or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company and the Holder specified above have caused this instrument to be duly executed.
ENTERGY CORPORATION
By:
Name:
Title:
HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts)
By: THE BANK OF NEW YORK, not individually but solely as attorney-in-fact or such Holder
By:
Name:
Title:
DATED:
CERTIFICATE OF AUTHENTICATION
OF PURCHASE CONTRACT AGENT
This is one of the Treasury Units referred to in the within mentioned Purchase Contract and Pledge Agreement.
THE BANK OF NEW YORK,
as Purchase Contract Agent
By:
Authorized Signatory
DATED:
(REVERSE OF TREASURY UNITS CERTIFICATE)
Each Purchase Contract evidenced hereby is governed by a Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (as may be supplemented from time to time, the "Purchase Contract and Pledge Agreement") between the Company and The Bank of New York, as Purchase Contract Agent (including its successors thereunder, herein called the "Purchase Contract Agent"), and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary (including its successors thereunder, the "Collateral Agent"), to which Purchase Contract and Pledge Agreement and supplemental agreements thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Purchase Contract Agent, the Collateral Agent, the Company and the Holders and of the terms upon which the Treasury Units Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this Treasury Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to the Stated Amount, a number of newly issued shares of Common Stock equal to the Settlement Rate, unless an Early Settlement, a Cash Merger Early Settlement or a Termination Event with respect to the Unit of which such Purchase Contract is a part shall have occurred. The Settlement Rate is subject to adjustment as described in the Purchase Contract and Pledge Agreement.
No fractional shares of Common Stock will be issued upon settlement of Purchase Contracts, as provided in Section 5.08 of the Purchase Contract and Pledge Agreement.
Each Purchase Contract evidenced hereby that is settled through Early Settlement or Cash Merger Early Settlement shall obligate the Holder of the related Treasury Units to purchase at the Purchase Price and the Company to sell, a number of newly issued shares of Common Stock equal to the Minimum Settlement Rate (in the case of an Early Settlement) or applicable Settlement Rate (in the case of a Cash Merger Early Settlement).
In accordance with the terms of the Purchase Contract and Pledge Agreement, the Holder of this Treasury Unit shall pay the Purchase Price for the shares of the Common Stock to be purchased pursuant to each Purchase Contract evidenced hereby either by effecting an Early Settlement or, if applicable, a Cash Merger Early Settlement of each such Purchase Contract or by applying the proceeds of the Pledged Treasury Securities underlying such Holder's Treasury Unit equal to the Purchase Price for such Purchase Contract to the purchase of the Common Stock.
The Company shall not be obligated to issue any shares of Common Stock in respect of a Purchase Contract or deliver any certificates therefor to the Holder unless it shall have received payment of the aggregate Purchase Price for the shares of Common Stock to be purchased thereunder in the manner set forth in the Purchase Contract and Pledge Agreement.
Each Purchase Contract evidenced hereby and all obligations and rights of the Company and the Holder thereunder, shall terminate if a Termination Event shall occur. Upon the occurrence of a Termination Event, the Company shall give written notice to the Purchase Contract Agent and the Holders, at their addresses as they appear in the Security Register. Upon and after the occurrence of a Termination Event, the Collateral Agent shall release the Treasury Securities underlying each Treasury Unit from the Pledge. A Treasury Unit shall thereafter represent the right to receive the Treasury Security underlying such Treasury Unit, in accordance with the terms of the Purchase Contract and Pledge Agreement.
The Treasury Units Certificates are issuable only in registered form and only in denominations of a single Treasury Unit and any integral multiple thereof. The transfer of any Treasury Units Certificate will be registered and Treasury Units Certificates may be exchanged as provided in the Purchase Contract and Pledge Agreement. A Holder who elects to substitute Senior Notes or Applicable Ownership Interests in the Treasury Portfolio, as the case may be, for Treasury Securities, thereby recreating Corporate Units, shall be responsible for any fees or expenses payable in connection therewith. Except as provided in the Purchase Contract and Pledge Agreement, such Treasury Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Treasury Unit in respect of the Treasury Security and the Purchase Contract constituting such Treasury Unit may be transferred and exchanged only as a Treasury Unit.
Subject to, and in compliance with, the conditions and terms set forth in the Purchase Contract and Pledge Agreement, the Holder of Treasury Units may effect a Collateral Substitution. From and after such substitution, each Unit for which Pledged Applicable Ownership Interests in Senior Notes or Pledged Applicable Ownership Interests in the Treasury Portfolio, as the case may be, secure the Holder's obligation under the Purchase Contract shall be referred to as a "Corporate Unit". A Holder may make such Collateral substitution only in multiples of 20 Treasury Units for 20 Corporate Units. If Applicable Ownership Interests in the Treasury Portfolio have replaced the Applicable Ownership Interests in Senior Notes as a component of the Corporate Units as a result of a Special Event Redemption, a Holder may substitute Applicable Ownership Interests in the Treasury Portfolio for Treasury Securities only in integral multiples of 32,000 Treasury Units. No Collateral Substitution is permitted followi ng a Successful Optional Remarketing.
Subject to and upon compliance with the provisions of the Purchase Contract and Pledge Agreement, at the option of the Holder thereof, Purchase Contracts underlying Units may be settled early by effecting an Early Settlement as provided in the Purchase Contract and Pledge Agreement in integral multiples of 20 Treasury Units.
Following March 1, 2006, upon Early Settlement of Purchase Contracts by a Holder of the related Units, the Pledged Treasury Securities underlying such Units shall be released from the Pledge as provided in the Purchase Contract and Pledge Agreement and the Holder shall be entitled to receive a number of shares of Common Stock on account of each Purchase Contract forming part of a Treasury Unit as to which Early Settlement is effected equal to the Minimum Settlement Rate.
Following March 1, 2006, upon the occurrence of a Cash Merger, a Holder of Treasury Units may effect Cash Merger Early Settlement of the Purchase Contracts underlying such Treasury Units pursuant to the terms of the Purchase Contract and Pledge Agreement in integral multiples of 20 Treasury Units. Upon Cash Merger Early Settlement of Purchase Contracts by a Holder of the related Treasury Units, the Pledged Treasury Securities underlying such Treasury Units shall be released from the Pledge as provided in the Purchase Contract and Pledge Agreement and the Holder shall be entitled to receive a number of shares of Common Stock on account of each Purchase Contract forming part of a Treasury Unit as to which Cash Merger Early Settlement is effected equal to the applicable Settlement Rate.
Upon registration of transfer of this Treasury Units Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee, except as may be required by the Purchase Contract Agent pursuant to the Purchase Contract and Pledge Agreement), under the terms of the Purchase Contract and Pledge Agreement and the Purchase Contracts evidenced hereby and the transferor shall be released from the obligations under the Purchase Contracts evidenced by this Treasury Units Certificate. The Company covenants and agrees, and the Holder, by its acceptance hereof, likewise covenants and agrees, to be bound by the provisions of this paragraph.
The Holder of this Treasury Units Certificate, by its acceptance hereof, authorizes the Purchase Contract Agent to enter into and perform the related Purchase Contracts forming part of the Treasury Units evidenced hereby on its behalf as its attorney-in-fact, expressly withholds any consent to the assumption (i.e., affirmance) of the Purchase Contracts by the Company or its trustee in the event that the Company becomes the subject of a case under the Bankruptcy Code, agrees to be bound by the terms and provisions thereof, covenants and agrees to perform its obligations under such Purchase Contracts, consents to the provisions of the Purchase Contract and Pledge Agreement, authorizes the Purchase Contract Agent to enter into and perform the Purchase Contract and Pledge Agreement on its behalf as its attorney-in-fact, and consents to the Pledge of the Treasury Securities underlying this Treasury Units Certificate pursuant to the Purchase Contract and Pledge Agreement. The Holder further covenants and agree s, that, to the extent and in the manner provided in the Purchase Contract and Pledge Agreement, but subject to the terms thereof, payments in respect to the aggregate principal amount at maturity of the Pledged Treasury Securities on the Purchase Contract Settlement Date equal to the aggregate Purchase Price for the related Purchase Contracts shall be paid by the Collateral Agent to the Company in satisfaction of such Holder's obligations under such Purchase Contracts and such Holder shall acquire no right, title or interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract and Pledge Agreement may be amended with the consent of the Holders of a majority of the Purchase Contracts.
The Purchase Contracts shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflicts of law provisions thereof to the extent a different law would govern as a result.
The Purchase Contracts shall not, prior to the settlement thereof, entitle the Holder to any of the rights of a holder of shares of Common Stock.
Prior to due presentment of this Certificate for registration of transfer, the Company, the Purchase Contract Agent and its Affiliates and any agent of the Company or the Purchase Contract Agent may treat the Person in whose name this Treasury Units Certificate is registered as the owner of the Treasury Units evidenced hereby for the purpose of receiving payments of Contract Adjustment Payments (subject to any applicable record date), performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any payments in respect thereof be overdue and notwithstanding any notice to the contrary, and neither the Company, the Purchase Contract Agent nor any such agent shall be affected by notice to the contrary.
A copy of the Purchase Contract and Pledge Agreement is available for inspection at the offices of the Purchase Contract Agent during regular business hours.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM: as tenants in common
UNIF GIFT MIN ACT: Custodian  
;
(cust) (minor)
Under Uniform Gifts to Minors Act of
TENANT: as tenants by the entireties
JT TEN: as joint tenants with right of survivorship and not as tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto
 
;
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee)
 
;
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Treasury Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing attorney , to transfer said Treasury Units Certificates on the books of Entergy Corporation, with full power of substitution in the premises.
Dated: Signature &nbs p;
NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Treasury Units Certificates in every particular, without alteration or enlargement or any change whatsoever.
Signature Guarantee:
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common Stock deliverable upon settlement on or after the Purchase Contract Settlement Date of the Purchase Contracts underlying the number of Treasury Units evidenced by this Treasury Units Certificate be registered in the name of, and delivered, together with a check in payment for any fractional share, to the undersigned at the address indicated below unless a different name and address have been indicated below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated: (if assigned to another person)
If shares are to be registered in the name of and delivered to a Person other than the Holder, please (i) print such Person's name and address and (ii) provide a guarantee of your signature: |
REGISTERED HOLDER |
||
Please print name and address of Registered Holder: |
|||
Name |
|||
Name |
|||
Address |
|||
Address |
|||
Social Security or other |
|||
Signature | |||
Signature Guarantee: |
ELECTION TO SETTLE EARLY/CASH MERGER EARLY SETTLEMENT
The undersigned Holder of this Treasury Units Certificate hereby irrevocably exercises the option to effect [Early Settlement] [Cash Merger Early Settlement] in accordance with the terms of the Purchase Contract and Pledge Agreement with respect to the Purchase Contracts underlying the number of Treasury Units evidenced by this Treasury Units Certificate specified below. The option to effect [Early Settlement] [Cash Merger Early Settlement] may be exercised only with respect to Purchase Contracts underlying Treasury Units in multiples of 20 Treasury Units or an integral multiple thereof. The undersigned Holder directs that a certificate for shares of Common Stock or other securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] be registered in the name of, and delivered, together with a check in payment for any fractional share and any Treasury Units Certificate representing any Treasury Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of th e related Purchase Contracts is not effected, to the undersigned at the address indicated below unless a different name and address have been indicated below. Pledged Treasury Securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] will be transferred in accordance with the transfer instructions set forth below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto.
Dated: Signature   ;
Signature Guarantee:
Number of Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is being elected:
Please print name and address of Registered Holder: |
||
If shares of Common Stock or Treasury Units Certificates are to be registered in the name of and delivered to and Pledged Treasury Securities, as the case may be, are to be transferred to a Person other than the Holder, please print such Person's name and address: |
||
Name |
||
Name |
Address |
|
Address |
||
Social Security or other Taxpayer Identification Number, if any |
REGISTERED HOLDER
Transfer Instructions for Pledged Treasury Securities Transferable upon [Early Settlement] [Cash Merger Early Settlement]:
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The initial number of Treasury Units evidenced by this Global Certificate is 0. The following increases or decreases in this Global Certificate have been made:
Date |
Amount of increase |
Amount of decrease |
Number of Treasury |
Signature of |
||||
EXHIBIT C
INSTRUCTION TO PURCHASE CONTRACT AGENT FROM HOLDER
(To Create Treasury Units or Corporate Units)
The Bank of New York,
as Purchase Contract Agent
c/o The Bank of New York Trust Company, N.A.
10161 Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust Administration
Fax: (904) 645-1997
Re: [ Corporate Units] [ Treasury Units] of Entergy Corporation, a Delaware corporation (the "Company").
The undersigned Holder hereby notifies you that it has delivered to JPMorgan Chase Bank, N.A., as Securities Intermediary, for credit to the Collateral Account, $ Value of [Senior Notes] [Applicable Ownership Interests in the Treasury Portfolio] [Treasury Securities] in exchange for an equal Value of [Pledged Treasury Securities] [Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio] held in the Collateral Account, in accordance with the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"; unless otherwise defined herein, terms defined in the Agreement are used herein as defined therein), among you, the Company, the Collateral Agent, the Custodial Agent and the Securities Intermediary. The undersigned Holder has paid all applicable fees and expenses relati ng to such exchange. The undersigned Holder hereby instructs you to instruct the Collateral Agent to release to you on behalf of the undersigned Holder the [Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio] [Pledged Treasury Securities] related to such [Corporate Units] [Treasury Units].
Date: Signature
Signature Guarantee:
Please print name and address of Registered Holder:
Name |
Social Security or other Taxpayer |
|
Address |
||
EXHIBIT D
NOTICE FROM PURCHASE CONTRACT AGENT
TO HOLDERS UPON TERMINATION EVENT
(Transfer of Collateral upon Occurrence of a Termination Event)
[HOLDER]
Attention:
Telecopy:
Re: [ Corporate Units] [ Treasury Units] of Entergy Corporation, a Delaware corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Purchase Contract and Pledge Agreement"; unless otherwise defined herein, terms defined in the Purchase Contract and Pledge Agreement are used herein as defined therein), among the Company, the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time, and JPMorgan Chase Bank, N.A., as the Collateral Agent, the Custodial Agent and the Securities Intermediary.
We hereby notify you that a Termination Event has occurred and that [the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes] [the Pledged Applicable Ownership Interests in the Treasury Portfolio] [the Treasury Securities] compromising a portion of your ownership interest in [Corporate Units] [Treasury Units] have been released and are being held by us for your account pending receipt of transfer instructions with respect to such [Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio] [Pledged Treasury Securities] (the "Released Securities").
Pursuant to Section 3.15 of the Purchase Contract and Pledge Agreement, we hereby request written transfer instructions with respect to the Released Securities. Upon receipt of your instructions and upon transfer to us of your [Corporate Units] [Treasury Units] effected through book-entry or by delivery to us of your [Corporate Units Certificate] [Treasury Units Certificate], we shall transfer the Released Securities by book-entry transfer or other appropriate procedures, in accordance with your instructions. In the event you fail to effect such transfer or delivery, the Released Securities and any distributions thereon, shall be held in our name, or a nominee in trust for your benefit, until such time as such [Corporate Units] [Treasury Units] are transferred or your [Corporate Units Certificate] [Treasury Units Certificate] is surrendered or satisfactory evidence is provided that such [Corporate Units Certificate] [Treasury Units Certificate] has been destroyed, lost or stolen, together with any indemn ification that we or the Company may require.
Date:
By: The Bank of New York
as the Purchase Contract Agent
Name:
Title: Authorized Signatory
EXHIBIT E
NOTICE OF CASH SETTLEMENT
The Bank of New York
as Purchase Contract Agent
c/o The Bank of New York Trust Company, N.A.
10161 Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust Administration
Fax: (904) 645-1997
Re: Corporate Units of Entergy Corporation, a Delaware corporation (the "Company")
The undersigned Holder hereby irrevocably notifies you in accordance with Section 5.02(b) of the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Purchase Contract and Pledge Agreement"; unless otherwise defined herein, terms defined in the Purchase Contract and Pledge Agreement are used herein as defined therein), among the Company and you, as Purchase Contract Agent and as attorney-in-fact for the Holders of the Corporate Units, and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary, that such Holder has elected to pay to the Securities Intermediary for deposit in the Collateral Account, prior to 5:00 p.m. (New York City time) on the Business Day immediately preceding the first day of the Final Remarketing Period (in lawful money of the United States by certified or cashiers' check or wire transfer, in immediately available funds payable to or upon the order of the Securities Intermediary), $ &nbs p; as the Purchase Price for the shares of Common Stock issuable to such Holder by the Company with respect to Purchase Contracts on the Purchase Contract Settlement Date. The undersigned Holder hereby instructs you to notify promptly the Collateral Agent of the undersigned Holders' election to make such Cash Settlement with respect to the Purchase Contracts related to such Holder's Corporate Units.
Date:
Signature
Signature Guarantee:
Please print name and address of Registered Holder:
EXHIBIT F
INSTRUCTION
FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT
(Creation of Treasury Units)
JPMorgan Chase Bank, N.A.,
as Collateral Agent
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Corporate Units of Entergy Corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent, and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
We hereby notify you in accordance with Section 3.13 of the Agreement that the holder of securities named below (the "Holder") has elected to substitute $ Value of Treasury Securities or security entitlements with respect thereto in exchange for an equal Value of [Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio] relating to Corporate Units and has delivered to the undersigned a notice stating that the Holder has Transferred such Treasury Securities or security entitlements with respect thereto to the Securities Intermediary, for credit to the Collateral Account.
We hereby request that you instruct the Securities Intermediary, upon confirmation that such Treasury Securities or security entitlements thereto have been credited to the Collateral Account, to release to the undersigned an equal Value of [Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto related to Corporate Units of such Holder in accordance with Section 3.13 of the Agreement.
Date:
The Bank of New York, as Purchase
Contract Agent and as attorney-in-fact of the
Holders from time to time of the Units
By:
Name:
Title:
Authorized Signatory
Please print name and address of Holder electing to substitute Treasury Securities or security entitlements with respect thereto for the [Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio]:
Name: |
Social Security or other Taxpayer Identification Number, if any |
|
Address |
||
EXHIBIT G
INSTRUCTION
FROM COLLATERAL AGENT
TO SECURITIES INTERMEDIARY
(Creation of Treasury Units)
JPMorgan Chase Bank, N.A.,
as Securities Intermediary
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Corporate Units of Entergy Corporation (the "Company")
This notice relates to the securities account of JPMorgan Chase Bank, N.A., as Collateral Agent, maintained by the Securities Intermediary and designated "JPMorgan Chase Bank, N.A., as Collateral Agent of Entergy Corporation, as pledgee of The Bank of New York, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders" (the "Collateral Account").
Please refer to the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent, and The Bank of New York, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
When you have confirmed that $ Value of Treasury Securities or security entitlements with respect thereto has been credited to the Collateral Account by or for the benefit of , as Holder of Corporate Units (the "Holder"), you are hereby instructed to release from the Collateral Account an equal Value of [Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes] [Pledged Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto relating to Corporate Units of the Holder by Transfer to the Purchase Contract Agent.
Dated:
JPMorgan Chase Bank, N.A.,
as Collateral Agent
By:
Name:
Title:
Authorized Signatory
EXHIBIT H
INSTRUCTION
FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT
(Recreation of Corporate Units)
JPMorgan Chase Bank, N.A.,
as Collateral Agent
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Treasury Units of Entergy Corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent, and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Treasury Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
We hereby notify you in accordance with Section 3.14 of the Agreement that the holder of securities named below (the "Holder") has elected to substitute $ Value of [Senior Notes] [Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto in exchange for $ Value of Pledged Treasury Securities relating to Treasury Units and has delivered to the undersigned a notice stating that the holder has Transferred such [Senior Notes] [Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto to the Securities Intermediary, for credit to the Collateral Account.
We hereby request that you instruct the Securities Intermediary, upon confirmation that such [Senior Notes] [Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto have been credited to the Collateral Account, to release to the undersigned $ Value of Treasury Securities or security entitlements with respect thereto related to Treasury Units of such Holder in accordance with Section 3.14 of the Agreement.
The Bank of New York,
as Purchase Contract Agent
Dated: By:
Name:
Title:
Authorized Signatory
Please print name and address of Holder electing to substitute [Senior Notes] [Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto for Pledged Treasury Securities:
Name: |
Social Security or other Taxpayer |
|
Address |
||
EXHIBIT I
INSTRUCTION
FROM COLLATERAL AGENT
TO SECURITIES INTERMEDIARY
(Recreation of Corporate Units)
JPMorgan Chase Bank, N.A.,
as Securities Intermediary
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Treasury Units of Entergy Corporation (the "Company")
This notice relates to the securities account of JPMorgan Chase Bank, N.A., as Collateral Agent, maintained by the Securities Intermediary and designated "JPMorgan Chase Bank, N.A., as Collateral Agent of Entergy Corporation, as pledgee of The Bank of New York, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders" (the "Collateral Account").
Please refer to the Purchase Contract and Pledge Agreement dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Securities Intermediary, Custodial Agent and Collateral Agent, and The Bank of New York, as Purchase Contract Agent and as attorney-in-fact for the holders of Treasury Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
When you have confirmed that $ Value of [Senior Notes] [Applicable Ownership Interests in the Treasury Portfolio] or security entitlements with respect thereto has been credited to the Collateral Account by or for the benefit of , as Holder of Treasury Units (the "Holder"), you are hereby instructed to release from the Collateral Account $ Value of Treasury Securities or security entitlements thereto by Transfer to the Purchase Contract Agent.
JPMorgan Chase Bank, N.A.,
as Collateral Agent
Dated: By:
Name:
Title:
Authorized Signatory
EXHIBIT J
NOTICE OF CASH SETTLEMENT FROM SECURITIES
INTERMEDIARY TO PURCHASE CONTRACT AGENT
(Cash Settlement Amounts)
The Bank of New York,
as Purchase Contract Agent
c/o The Bank of New York Trust Company, N.A.
10161 Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust Administration
Fax: (904) 645-1997
Re: Corporate Units of Entergy Corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement dated as of December 20, 2005 (the "Agreement"), by and among you, the Company, and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary. Unless otherwise defined herein, terms defined in the Agreement are used herein as defined therein.
In accordance with Section 5.02(b)(iv) of the Agreement, we hereby notify you that as of 5:00 p.m. (New York City time) on the Business Day immediately preceding the first day of the Final Remarketing Period, we have received (i) $ in immediately available funds paid in an aggregate amount equal to the Purchase Price due to the Company on the Purchase Contract Settlement Date with respect to Corporate Units and (ii) based on the funds received set forth in clause (i) above, an aggregate principal amount of $ of Senior Notes underlying Pledged Applicable Ownership Interests in Senior Notes are to be offered for purchase in each Remarketing during the Final Remarketing Period.
JPMorgan Chase Bank, N.A.,
as Securities Intermediary
Dated: By:
Name:
Title:
Authorized Signatory
EXHIBIT K
INSTRUCTION FROM HOLDER OF SEPARATE SENIOR NOTES TO CUSTODIAL AGENT REGARDING REMARKETING
JPMorgan Chase Bank, N.A.,
as Custodial Agent
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Senior Notes, Series A of Entergy Corporation (the "Company")
The undersigned Holder hereby notifies you in accordance with Section 5.02(d)(ii) of the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Collateral Agent, Custodial Agent and Securities Intermediary, and JPMorgan Chase Bank, N.A., as the Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time, that the undersigned elects to deliver $ aggregate principal amount of Separate Senior Notes for delivery to the Remarketing Agent prior to 5:00 p.m. (New York City time) on the second Business Day immediately preceding the first day of the Applicable Remarketing Period for remarketing pursuant to Section 5.02(d)(ii) of the Agreement. The undersigned will, upon request of the Remarketing Agent, execute a nd deliver any additional documents deemed by the Remarketing Agent or by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Separate Senior Notes tendered hereby. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
The undersigned hereby instructs you, upon receipt of the Proceeds of a Successful Remarketing from the Remarketing Agent, to deliver such Proceeds to the undersigned in accordance with the instructions indicated herein under "A. Payment Instructions." The undersigned hereby instructs you, in the event of a Failed Remarketing, upon receipt of the Separate Senior Notes tendered herewith from the Remarketing Agent, to deliver such Separate Senior Notes to the person(s) and the address(es) indicated herein under "B. Delivery Instructions."
With this notice, the undersigned hereby (i) represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Separate Senior Notes tendered hereby and that the undersigned is the record owner of any Separate Senior Notes tendered herewith in physical form or a participant in The Depository Trust Company ("DTC") and the beneficial owner of any Separate Senior Notes tendered herewith by book-entry transfer to your account at DTC, (ii) agrees to be bound by the terms and conditions of Section 5.02 of the Agreement and (iii) acknowledges and agrees that after 5:00 p.m. (New York City time) on the second Business Day immediately preceding the first day of the Applicable Remarketing Period, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in each Remarketing during the Applicable Remarketing Period, and that the Separate Senior Notes tendered herewith will only be returned in the event of a Failed Remarketing.
Date: |
|||||
By: |
|||||
Name: |
|||||
Title: |
|||||
Signature Guarantee: |
|||||
Name |
|||||
Social Security or other Taxpayer Identification Number, if any |
|||||
Address |
|||||
A. PAYMENT INSTRUCTIONS
Proceeds of a Successful Remarketing should be paid by check in the name of the person(s) set forth below and mailed to the address set forth below.
Name(s)
(Please Print)
Address
(Please Print)
(Zip Code)
(Tax Identification or Social Security Number)
B. DELIVERY INSTRUCTIONS
In the event of a Failed Remarketing, Senior Notes which are in physical form should be delivered to the person(s) set forth below and mailed to the address set forth below.
Name(s)
(Please Print)
Address
(Please Print)
(Zip Code)
(Tax Identification or Social Security Number)
In the event of a Failed Remarketing, Senior Notes which are in book-entry form should be credited to the account at The Depository Trust Company set forth below.
DTC Account Number
Name of Account Party:
EXHIBIT L
INSTRUCTION FROM HOLDER OF SEPARATE SENIOR NOTES TO CUSTODIAL AGENT REGARDING
WITHDRAWAL FROM REMARKETING
JPMorgan Chase Bank, N.A.,
as Custodial Agent
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Senior Notes, Series A of Entergy Corporation (the "Company")
The undersigned Holder hereby notifies you in accordance with Section 5.02(d)(ii) of the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"), among the Company and you, as Collateral Agent, Custodial Agent and Securities Intermediary, and The Bank of New York, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time, that the undersigned elects to withdraw the $ aggregate principal amount of Separate Senior Notes delivered to you for Remarketing pursuant to Section 5.02 of the Agreement. The undersigned hereby instructs you to return such Separate Senior Notes to the undersigned in accordance with the undersigned's instructions. With this notice, the Undersigned hereby agrees to be bound by the terms and conditions of Section 5.02 of the Agreement. Capital ized terms used herein but not defined shall have the meaning set forth in the Agreement.
Date: |
|||||
By: |
|||||
Name: |
|||||
Title: |
|||||
Signature Guarantee: |
|||||
Name |
|||||
Social Security or other Taxpayer |
|||||
Address |
EXHIBIT M
NOTICE TO SETTLE WITH SEPARATE CASH
The Bank of New York,
as Purchase Contract Agent
c/o The Bank of New York Trust Company, N.A.
10161 Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust Administration
Fax: (904) 645-1997
Re: Corporate Units of Entergy Corporation, a Delaware corporation (the "Company")
The undersigned Holder hereby irrevocably notifies you in accordance with Section 5.02(c)(iii) of the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Purchase Contract and Pledge Agreement"; unless otherwise defined herein, terms defined in the Purchase Contract and Pledge Agreement are used herein as defined therein), among the Company and you, as Purchase Contract Agent and as attorney-in-fact for the Holders of the Corporate Units, and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary, that such Holder has elected to pay to the Securities Intermediary for deposit in the Collateral Account, on or prior to 5:00 p.m. (New York City time) on the Business Day immediately preceding the Purchase Contract Settlement Date (in lawful money of the United States by certified or cashiers check or wire transfer, in immediately available funds payable to or upon the order of the Securities Intermediary), $ &n bsp; as the Purchase Price for the shares of Common Stock issuable to such Holder by the Company with respect to Purchase Contracts on the Purchase Contract Settlement Date. The undersigned Holder hereby instructs you to notify promptly the Collateral Agent of the undersigned Holders' election to settle the Purchase Contracts related to such Holder's Corporate Units with separate cash.
Date:
Signature
Signature Guarantee:
Please print name and address of Registered Holder:
EXHIBIT N
NOTICE
FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT
(Settlement with Separate Cash)
JPMorgan Chase Bank, N.A.,
as Collateral Agent
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Corporate Units of Entergy Corporation, a Delaware corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent, and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the Holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
We hereby notify you in accordance with Section 5.02(c)(iii) of the Agreement that the Holder of Corporate Units named below (the "Holder") has elected to settle the Purchase Contracts related to its Pledged Applicable Ownership Interests in Senior Notes with $ of separate cash prior to 5:00 p.m. (New York City time) on the second Business Day immediately preceding the Purchase Contract Settlement Date (in lawful money of the United States by certified or cashiers check or wire transfer, in immediately available funds payable to or upon the order of the Securities Intermediary) and has delivered to the undersigned a notice to that effect.
We hereby request that you, upon confirmation that the Purchase Price has been paid by the Holder to the Securities Intermediary in accordance with Section 5.02(c)(iii) of the Agreement in lieu of exercise of such Holder's Put Right, give us notice of the receipt of such payment and (A) promptly invest the separate cash received in Permitted Investments consistent with the instructions of the Company as provided in Section 5.02(b)(v) of the Agreement with respect to Cash Settlement, (B) promptly release from the Pledge the Senior Notes underlying the Applicable Ownership Interest in Senior Notes related to the Corporate Units as to which such Holder has paid such separate cash; and (C) promptly Transfer all such Senior Notes to us for distribution to such Holder, in each case free and clear of the Pledge created by the Agreement.
Date:
The Bank of New York, as Purchase
Contract Agent and as attorney-in-fact of the Holders from time to time of the Units
By:
Name:
Title:
Authorized Signatory
Please print name and address of Holder electing to settle with separate cash:
Name: |
Social Security or other Taxpayer Identification Number, if any |
|
Address |
||
EXHIBIT O
NOTICE OF SETTLEMENT WITH SEPARATE CASH FROM
SECURITIES INTERMEDIARY TO PURCHASE CONTRACT AGENT
(Settlement with Separate Cash)
The Bank of New York,
as Purchase Contract Agent
c/o The Bank of New York Trust Company, N.A.
10161 Centurion Parkway
Jacksonville, FL 32256
Attention: Corporate Trust Administration
Fax: (904) 645-1997
Re: Corporate Units of Entergy Corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement dated as of December 20, 2005 (the "Agreement"), by and among you, the Company, and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary. Unless otherwise defined herein, terms defined in the Agreement are used herein as defined therein.
In accordance with Section 5.02(b)(v) of the Agreement, we hereby notify you that as of 5:00 p.m. (New York City time) on the Business Day immediately preceding February 17, 2009 (the "Purchase Contract Settlement Date"), (i) we have received from $ in immediately available funds paid in an aggregate amount equal to the Purchase Price due to the Company on the Purchase Contract Settlement Date with respect to Corporate Units and (ii) based on the funds received set forth in clause (i) above, an aggregate principal amount of $ of Senior Notes underlying related Pledged Applicable Ownership Interests in Senior Notes are to be released from the Pledge and Transferred to you.
JPMorgan Chase Bank, N.A.,
as Securities Intermediary
Dated: By:
Name:
Title:
Authorized Signatory
EXHIBIT P
NOTICE
FROM PURCHASE CONTRACT AGENT
TO COLLATERAL AGENT
(Cash Settlement)
JPMorgan Chase Bank, N.A.,
as Collateral Agent
Attention: Worldwide Securities Services
Fax: (212) 623-6167
Re: Corporate Units of Entergy Corporation, a Delaware corporation (the "Company")
Please refer to the Purchase Contract and Pledge Agreement, dated as of December 20, 2005 (the "Agreement"), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent, and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the Holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Agreement.
We hereby notify you in accordance with Section 5.02(b) of the Agreement that the Holder of Corporate Units named below (the "Holder") has elected to pay to the Securities Intermediary for deposit in the Collateral Account, prior to 5:00 p.m. (New York City time) on the Business Day immediately preceding the first day of the Final Remarketing Period (in lawful money of the United States by certified or cashiers check or wire transfer, in immediately available funds payable to or upon the order of the Securities Intermediary), $ as the Purchase Price for the shares of Common Stock issuable to such Holder by the Company with respect to Purchase Contracts on the Purchase Contract Settlement Date and has delivered to the undersigned a notice to that effect.
We hereby request that you, upon confirmation that the Purchase Price has been paid by the Holder in accordance with Section 5.02(b)(ii) of the Agreement, (A) instruct the Securities Intermediary promptly to invest any such Cash in Permitted Investments consistent with the instructions of the Company as provided for in Section 5.02(b)(v) of the Agreement, (B) release from the Pledge the Senior Notes underlying the Applicable Ownership Interest in Senior Notes related to the Corporate Units as to which such Holder has effected a Cash Settlement; and (C) instruct the Securities Intermediary to Transfer all such Senior Notes to us for distribution to such Holder, in each case free and clear of the Pledge created by the Agreement.
Date:
The Bank of New York, as Purchase
Contract Agent and as attorney-in-fact of the Holders from time to time of the Units
By:
Name:
Title:
Authorized Signatory
Please print name and address of Holder electing a Cash Settlement:
Name: |
Social Security or other Taxpayer Identification Number, if any |
|
Address |
||
Exhibit 4(a)13
Entergy Corporation
REMARKETING AGREEMENT
Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This Agreement is dated as of December 20, 2005 (this "Agreement") by and among Entergy Corporation, a Delaware corporation (the "Company"), Citigroup Global Markets Inc., as the reset agent and the remarketing agent (collectively, the "Remarketing Agent"), and The Bank of New York, not individually but solely as Purchase Contract Agent (the "Purchase Contract Agent") and as attorney-in-fact of the holders of Purchase Contracts (as defined in the Purchase Contract and Pledge Agreement referred to below).
Capitalized terms used and not defined in this Agreement shall have the meanings set forth in the Purchase Contract and Pledge Agreement, dated as of December 20, 2005, among the Company, the Purchase Contract Agent and JPMorgan Chase Bank, N.A., as Collateral Agent, Custodial Agent and Securities Intermediary, as amended from time to time (the "Purchase Contract and Pledge Agreement").
"Agreement" has the meaning specified in the first paragraph of this Remarketing Agreement.
"Commencement Date" has the meaning specified in Section 3.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning specified in the first paragraph of this Remarketing Agreement.
"Disclosure Package" means (x) the Statutory Prospectus, (y) the Issuer Free Writing Prospectuses, if any, agreed to, in writing, by the Company and the Remarketing Agent, and (z) any other Free Writing Prospectus, if any, agreed to, in writing, by the Company and the Remarketing Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Free Writing Prospectus" means a free writing prospectus, as defined in Rule 405 under the Securities Act.
"Final Remarketing" has the meaning specified in Section 2(c).
"Final Remarketing Date" has the meaning specified in Section 2(c).
"indemnified party" has the meaning specified in Section 7(c).
"indemnifying party" has the meaning specified in Section 7(c).
"Issuer Free Writing Prospectus" means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act.
"Optional Remarketing" has the meaning specified in Section 2(b).
"Optional Remarketing Date" has the meaning specified in Section 2(b).
"Preliminary Prospectus" means any preliminary prospectus included as part of the Registration Statement prior to the time the Registration Statement became effective or any preliminary prospectus or preliminary prospectus supplement provided by the Company for use by the Remarketing Agent in connection with the Remarketing of the Remarketed Senior Notes on or prior to the Optional Remarketing Date, if any, or a Final Remarketing Date, in each case, including the documents incorporated or deemed to be incorporated by reference therein as of the date of such preliminary prospectus or preliminary prospectus supplement; and any reference to any amendment or supplement to such preliminary prospectus or preliminary prospectus supplement, if permitted by the rules and regulations under the Securities Act, shall be deemed to refer to and include any documents filed after the date of such preliminary prospectus or preliminary prospectus supplement under the Exchange Act and incorporated or deemed to be incorporated by reference in such preliminary prospectus or preliminary prospectus supplement.
"Prospectus" means the prospectus or prospectus supplement constituting a part of the Registration Statement relating to the Remarketed Senior Notes, including the documents incorporated or deemed to be incorporated by reference therein as of the date of such prospectus or prospectus supplement in the form transmitted for filing to the Commission after the effective date of the Registration Statement pursuant to Rule 424 under the Securities Act; and any reference to any amendment or supplement to such prospectus or prospectus supplement, if permitted by the rules and regulations under the Securities Act, shall be deemed to refer to and include any documents filed after the date of such prospectus or prospectus supplement, under the Exchange Act, and incorporated or deemed to be incorporated by reference in such prospectus or prospectus supplement.
"Purchase Contract and Pledge Agreement" has the meaning specified in Section 1(a).
"Registration Statement" means a registration statement under the Securities Act prepared by the Company and filed with the Commission relating to, inter alia, the Remarketing of the Remarketed Senior Notes pursuant to Section 5(a) hereunder, including all exhibits thereto and the documents incorporated or deemed to be incorporated by reference in the prospectus contained in such registration statement, and any pre-effective or post-effective amendments thereto.
"Remarketed Senior Notes" means, with respect to all Remarketings during any Applicable Remarketing Period, the aggregate Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes and the Separate Senior Notes, if any, subject to Remarketing as identified to the Remarketing Agent by the Purchase Contract Agent and the Custodial Agent, respectively, in each case promptly after 5:00 p.m., New York City time, on the Business Day immediately preceding the first day of such Applicable Remarketing Period in accordance with the Purchase Contract and Pledge Agreement and shall include: (a) the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes of the Holders of Corporate Units who have not effected a Collateral Substitution, Early Settlement or a Cash Merger Early Settlement prior to the second Business Day immediately preceding the first day of such Applicable Remarketing Period, and, in the case of a Final Remarketing, Holders of Corporate Unit s who have not notified the Purchase Contract Agent prior to 5:00 p.m., New York City time, on the second Business Day immediately preceding the first day of the Final Remarketing Period of their intention to effect a Cash Settlement of the related Purchase Contracts pursuant to the terms of the Purchase Contract and Pledge Agreement or who have so notified the Purchase Contract Agent but failed to make the required cash payment prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the first day of the Final Remarketing Period, and (b) the Separate Senior Notes of the holders of Separate Senior Notes, if any, who have elected to have their Separate Senior Notes remarketed in such Remarketing prior to 5:00 p.m., New York City time, on the second Business Day immediately preceding the first day of such Applicable Remarketing Period, pursuant to the terms of the Purchase Contract and Pledge Agreement.
"Remarketing" means the remarketing of the Remarketed Senior Notes pursuant to this Remarketing Agreement on any Remarketing Date occurring during an Optional Remarketing Period, if any, and on any Remarketing Date during the Final Remarketing Period.
"Remarketing Fee" has the meaning specified in Section 4.
"Remarketing Materials" means the Registration Statement, the Preliminary Prospectus, the Statutory Prospectus, the Prospectus or any other information furnished by the Company to the Remarketing Agent for distribution to investors in connection with the Remarketing.
"Remarketing Settlement Date" means (a) in the case of a Successful Optional Remarketing occurring during the Optional Remarketing Period from November 3, 2008 to November 13, 2008, November 17, 2008, (b) in the case of a Successful Optional Remarketing occurring during the Optional Remarketing Period from December 1, 2008 to December 11, 2008, the third Business Day following the date of such Successful Optional Remarketing, and (b) in the case of a Final Remarketing, the Purchase Contract Settlement Date.
"Reset Rate" has the meaning specified in Section 2(d).
"Securities" has the meaning specified in Section 9.
"Senior Notes" means the series of notes designated the Senior Notes, Series A of the Company issued pursuant to the Supplemental Indenture.
"Statutory Prospectus" means, as of any time, the prospectus or prospectus supplement relating to the Remarketed Senior Notes that is included as part of the Registration Statement immediately prior to that time, including the documents incorporated or deemed to be incorporated by reference therein.
"Transaction Documents" means this Agreement, the Purchase Contract and Pledge Agreement and the Supplemental Indenture, in each case as amended or supplemented from time to time.
"Underwriting Agreement" has the meaning specified in Section 3(a).
The Company hereby appoints Citigroup Global Markets Inc. as the exclusive Remarketing Agent, and, subject to the terms and conditions set forth herein, Citigroup Global Markets Inc. hereby accepts appointment as Remarketing Agent, for the purpose of (i) remarketing the Remarketed Senior Notes on behalf of the holders thereof, (ii) determining, in consultation with the Company, in the manner provided for herein and in the Purchase Contract and Pledge Agreement and the Supplemental Indenture, the Reset Rate for the Senior Notes, and (iii) performing such other duties as are assigned to the Remarketing Agent in the Transaction Documents.
The Company represents and warrants (except as may be adapted as necessary to relate to the Remarketed Senior Notes and to the Remarketing Materials, if any, or to any changed circumstances or events occurring subsequent to the date of this Agreement, such adaptations being reasonably acceptable to counsel to the Remarketing Agent), (i) on and as of the date any Remarketing Materials are first distributed in connection with any Remarketing (the "Commencement Date"), (ii) on and as of the Applicable Remarketing Date and (iii) on and as of the Remarketing Settlement Date, that:
In the event of a Successful Remarketing of the Remarketed Senior Notes, the Company shall pay the Remarketing Agent a remarketing fee to be agreed upon in writing by the Company and the Remarketing Agent prior to any such Remarketing (the "Remarketing Fee"). Such Remarketing Fee shall be paid by the Company on the Remarketing Settlement Date in cash by wire transfer of immediately available funds to an account designated by the Remarketing Agent.
The Company covenants and agrees as follows:
The obligations of the Remarketing Agent hereunder shall be subject to the following conditions:
The Company shall indemnify, defend and hold harmless the Remarketing Agent and each person who controls the Remarketing Agent within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages or liabilities to which the Remarketing Agent may become subject under the Securities Act or any other statute or common law and shall reimburse the Remarketing Agent and any such controlling person for any legal or other expenses (including to the extent hereinafter provided, reasonable counsel fees) incurred by them in connection with investigating any such losses, claims, damages or liabilities or in connection with defending any actions, insofar as such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon (i) (A) the failure to have an effective registration statement under the Securities Act relating to the Remarketed Senior Notes or the failure to either satisfy the prospectus delivery requi rements of the Securities Act because the Company failed to provide the Remarketing Agent with an updated prospectus for delivery in accordance with applicable law or satisfy the requirements of Rule 172 under the Securities Act, (B) an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, as amended or supplemented, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or upon any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Prospectus, the Statutory Prospectus, any Issuer Free Writing Prospectus, as each may be amended or supplemented, or any other Remarketing Materials or the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (ii) any breach by the Com pany of any representation or warranty or failure by the Company to comply with any obligation set forth herein, (iii) any and all other losses, actions, claims, damages, liabilities or expenses that otherwise arise out of or are based upon or asserted against the Remarketing Agent by any person in connection with or as a result of the Remarketing Agent acting as such pursuant to this Agreement or any other matter referred to in this Agreement except to the extent that the losses, claims, damages, liabilities, expenses or actions referred to in this clause (iii) have been determined in a final unappealable judicial proceeding to have resulted from the Remarketing Agent's gross negligence, bad faith or willful misconduct in performing the services that are the subject of this Agreement; provided, however, that in the case of clause (i)(B) above, the Company shall not be liable and shall not indemnify and hold harmless in any such case the Remarketing Agent to the extent that any such losses, cla ims, damages, liabilities, expenses or actions arise out of or are based upon any untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by the Remarketing Agent specifically for use in connection with the preparation of the Registration Statement, any Preliminary Prospectus, the Prospectus, the Statutory Prospectus or any Issuer Free Writing Prospectus or any amendment or supplement to any thereof or arise out of, or are based upon, statements in or omissions from the Statement of Eligibility.
The Company and the Remarketing Agent agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable to an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), the Remarketing Agent shall not be required to contribute any amount in excess of the amount by which the Remarketing Fee exceeds the amount of any damages that the Remarketing Agent has otherwise been required to pay by reason of such untrue or alleged untrue state ment or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
The Remarketing Agent may resign and be discharged from its duties and obligations hereunder, and the Company may remove the Remarketing Agent, by giving 30 days' prior written notice, in the case of a resignation, to the Company and the Purchase Contract Agent and, in the case of a removal, to the removed Remarketing Agent and the Purchase Contract Agent.
In any such case, the Company will use commercially reasonable efforts to appoint a successor Remarketing Agent and enter into a remarketing agreement (or an appropriate amendment to this Agreement) with such person as soon as reasonably practicable. The provisions of Section 7 shall survive the resignation or removal of any Remarketing Agent pursuant to this Agreement.
The Remarketing Agent, when acting as a Remarketing Agent or in its individual or any other capacity, may, to the extent permitted by law, buy, sell, hold and deal in any of the Remarketed Senior Notes, Corporate Units, Treasury Units or any of the securities of the Company (together, the "Securities"). The Remarketing Agent may exercise any vote or join in any action which any beneficial owner of such Securities may be entitled to exercise or take pursuant to the Indenture with like effect as if it did not act in any capacity hereunder. The Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or have an interest in any financial or other transaction with the Company as freely as if it did not act in any capacity hereunder.
The duties and obligations of the Remarketing Agent hereunder shall be determined solely by the express provisions of this Agreement and the other Transaction Documents. No implied covenants or obligations of or against the Remarketing Agent shall be read into this Agreement or any of the other Transaction Documents. In the absence of bad faith on the part of the Remarketing Agent, the Remarketing Agent may conclusively rely upon any document furnished to it, as to the truth of the statements expressed in any of such documents. The Remarketing Agent shall be protected in acting upon any document or communication reasonably believed by it to have been signed, presented or made by the proper party or parties except as otherwise set forth herein. The Remarketing Agent shall have no obligation to determine whether there is any limitation under applicable law on the Reset Rate on the Senior Notes or, if there is any such limitation, the maximum permissible Reset Rate on the Senior Notes, and it shall rely s olely upon written notice from the Company (which the Company agrees to provide prior to the eighth Business Day before the applicable Remarketing Date) as to whether or not there is any such limitation and, if so, the maximum permissible Reset Rate. The Remarketing Agent, acting under this Agreement, shall incur no liability to the Company or to any holder of Remarketed Senior Notes in its individual capacity or as Remarketing Agent for any action or failure to act, on its part in connection with a Remarketing or otherwise, except if such liability is judicially determined to have resulted from its failure to comply with the material terms of this Agreement or bad faith, gross negligence or willful misconduct on its part. The provisions of this Section 10 shall survive the termination of this Agreement and shall survive the resignation or removal of any Remarketing Agent pursuant to this Agreement.
Any other provision of this Agreement to the contrary notwithstanding, (a) the indemnity and contribution agreements contained in Section 7 hereof, and the representations and warranties and other agreements of the Company and the Remarketing Agent contained in this Agreement shall remain in full force and effect regardless of (i) any investigation made by or on behalf of the Remarketing Agent or by or on behalf of the Company or its directors or officers, or any of the other persons referred to in Section 7 hereof and (ii) acceptance of and payment for the Remarketed Senior Notes, and (b) the indemnity and contribution agreements contained in Section 7 shall remain operative and in full force and effect regardless of any termination of this Agreement.
This Agreement shall automatically terminate (i) as to the Remarketing Agent on the effective date of the resignation or removal of the Remarketing Agent pursuant to Section 8 hereof and (ii) on the earlier of (x) any Special Event Redemption Date, (y) the occurrence of a Termination Event and (z) the Business Day immediately following the Remarketing Settlement Date. If this Agreement is terminated pursuant to any of the other provisions hereof, except as otherwise provided herein, the Company shall not be under any liability to the Remarketing Agent and the Remarketing Agent shall not be under any liability to the Company, except that if this Agreement is terminated by the Remarketing Agent because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, the Company will reimburse the Remarketing Agent for all of its out-of-pocket expenses (including the fees and disbursements of its counsel) reasonably incurred by it. No twithstanding any termination of this Agreement, in the event there has been a Successful Remarketing, the obligations set forth in Section 4 hereof shall survive and remain in full force and effect until all amounts payable under said Section 4 shall have been paid in full. In addition, Sections 7 and 10 hereof shall survive the termination of this Agreement or the resignation or removal of the Remarketing Agent.
THE RIGHTS AND DUTIES OF THE PARTIES TO THIS REMARKETING AGREEMENT SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES THAT MIGHT CALL FOR THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION. This Agreement shall become effective when a fully executed copy hereof is delivered to the Remarketing Agent by the Company. This Agreement may be executed in any number of separate counterparts, each of which, when so executed and delivered, shall be deemed to be an original and all of which, taken together, shall constitute but one and the same agreement. This Agreement shall inure to the sole benefit of each of the Company, the Remarketing Agent, and the Purchase Contract Agent, except that with respect to the provisions of Section 7 hereof, such provisions shall also be deemed to be for the benefit of each director, officer and other persons referred to in Section 7 hereof, and their respective succes sors. Should any part of this Agreement for any reason be declared invalid, such declaration shall not affect the validity of any remaining portion, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated. Nothing herein is intended or shall be construed to give to any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of any provision in this Agreement. The term "successor" as used in this Agreement shall not include any purchaser, as such purchaser, of any Securities from the Remarketing Agent.
All communications hereunder shall be in writing and, if to the Remarketing Agent, shall be delivered or sent by mail, telex or facsimile transmission to Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10013, Attention: General Counsel (fax: 212-816-7912); if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the Company, 500 Clinton Center Drive, Clinton, Mississippi, 39056, Attention: Treasurer (Fax: 832-681-3218); and if to the Purchase Contract Agent, shall be delivered or sent by mail or facsimile transmission to The Bank of New York, c/o The Bank of New York Trust Company, N.A., 10161 Centurion Parkway, Jacksonville, FL 32256 Attention: Corporate Trust Administration (Fax: 904-645-1997). Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof.
This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument.
The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
If any provision of this Agreement shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any or all jurisdictions because it conflicts with any provisions of any constitution, statute, rule or public policy or for any other reason, then, to the extent permitted by law, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case, circumstance or jurisdiction, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever.
This Agreement may be amended by an instrument in writing signed by the parties hereto. Each of the Company and the Purchase Contract Agent agrees that it will not enter into, cause or permit any amendment or modification of the Transaction Documents or any other instruments or agreements relating to the Applicable Ownership Interests in Senior Notes, the Senior Notes or the Corporate Units that would in any way adversely affect the rights, duties and obligations of the Remarketing Agent, without the prior written consent of the Remarketing Agent.
Except in the case of a succession pursuant to the terms of the Purchase Contract and Pledge Agreement, the rights and obligations of the Company hereunder may not be assigned or delegated to any other Person without the prior written consent of the Remarketing Agent. The rights and obligations of the Remarketing Agent hereunder may not be assigned or delegated to any other Person (other than an affiliate of the Remarketing Agent) without the prior written consent of the Company.
If the foregoing correctly sets forth the agreement by and among the Company, the Remarketing Agent and the Purchase Contract Agent, please indicate your acceptance in the space provided for that purpose below.
[SIGNATURES ON THE FOLLOWING PAGE]
Very truly yours,
ENTERGY CORPORATION
By: /s/ Steven C. McNeal
Name: Steven C. McNeal
Title: Vice President and Treasurer
CONFIRMED AND ACCEPTED:
CITIGROUP GLOBAL MARKETS INC.,
as Remarketing Agent
By: /s/ David Blackford
Name: David Blackford
Title: Vice President
THE BANK OF NEW YORK,
not individually, but solely as Purchase
Contract Agent and as attorney-in-fact for
the Holders of the Purchase Contracts
By: /s/ Robert A. Massimillo
Name: Robert A. Massimillo
Title: Vice President
Exhibit 10(a)91
AMENDMENT TO
RETENTION AGREEMENT
THIS INSTRUMENT, effective January 1, 2005, by and between Entergy Corporation, a Delaware corporation ("Company"), and J. Wayne Leonard ("Executive"), hereby constitutes an amendment to the Retention Agreement entered into by and between Company and Executive on November 21, 2000 and effective on October 27, 2000 ("Agreement"). Except as otherwise provided herein, the Agreement shall remain in full force and effect in accordance with its original terms and conditions.
WHEREAS, the Agreement provides certain benefits to Executive that are subject to the deferred compensation requirements of Internal Revenue Code Section 409A; and
WHEREAS, the Company and Executive desire to amend the Agreement to incorporate certain transitional relief provisions available under Internal Revenue Bulletin 2005-1, Q&A-19(c) and the Preamble to Proposed 409A Regulations; and
WHEREAS, Section 12 of the Agreement provides that it may not be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer as may be specifically designated by the Board; and
WHEREAS, the Board of Directors of Company has authorized the undersigned Company Officer to execute this Amendment to the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, Company and Executive hereby agree to amend the Agreement as follows:
1. An Addendum is added at the end of the Agreement to read as follows:
ADDENDUM
Notwithstanding any other provision of this Agreement to the contrary, all deferred compensation under this Agreement, including specifically the Supplemental Retirement Benefit provided under this Agreement, is subject to Internal Revenue Code ("Code") section 409A. Executive is hereby allowed to make new payment elections with respect to the Supplemental Retirement Benefit, including but not limited to conversion deferral elections under the terms and conditions of the Executive Deferred Compensation Plan of Entergy Corporation and Subsidiaries, in accordance with Internal Revenue Service Notice 2005-1, Q&A-19(c), and related Proposed Treasury Regulations under Internal Revenue Code Section 409A. Such elections shall be made in accordance with the Transitional Payment Election Form attached to this Addendum.
IN WITNESS WHEREOF, the parties have executed this Amendment on this 30th day of December 2005, but effective as of the date above written.
ENTERGY CORPORATION | EXECUTIVE |
Through its Duly Authorized Officer | |
By: /s/ William E. Madison | By: /s/ J. Wayne Leonard |
William E. Madison | J. Wayne Leonard |
Senior Vice-President, Human | Chief Executive Officer, |
Resources and Administration | Entergy Corporation |
Retention Agreement Effective October 27, 2000 and
Executive Deferred Compensation Plan of Entergy Corporation and Subsidiaries ("EDCP")
Transitional Payment Election Form
NOTE: This form constitutes a new payment election, and supercedes all prior Payment Election Forms, with respect to the Supplemental Retirement Benefit payable under your Retention Agreement with Entergy Corporation effective as of October 27, 2000 ("Retention Agreement") and as may be converted in whole or in part into the EDCP. This election is being made pursuant to Transitional Guidance under IRS Notice 2005-1, Q&A-19(c) and related Proposed Treasury Regulations under Internal Revenue Code Section 409A.
Participant's Name (please print): J. Wayne Leonard
Participant's Social Security Number: _________ - _______ - _____________
General Information Regarding This Election
Pursuant to the instructions set forth below and the terms and conditions of the EDCP, the Plan Administrator for the EDCP, by his signature below, hereby authorizes you to irrevocably elect to defer (in one percent increments) any percentage of the actuarial equivalent lump sum value of the Supplemental Retirement Benefit that may be awarded to you in accordance with the terms and conditions of your Retention Agreement, provided such Supplemental Retirement Benefit is payable on account of your Retirement or a Qualifying Termination occurring after December 31, 2005. If you elect to defer only a portion of your benefit, any remaining benefit amount (less all applicable taxes and other withholdings) will be paid to you as soon as administratively practicable after your Retirement or Qualifying Termination in a single-sum distribution.
Under Section A of this form, you must elect the form of payment of the Supplemental Retirement Benefit to which you may be entitled. Failure to make an election under Section A will result in payment of your Supplemental Retirement Benefit under the normal form of payment, (i.e., 50% Joint and Survivor Annuity). You will not be able to change this form of distribution election unless you make such change at least 12 months prior to the scheduled commencement date of your Supplemental Retirement Benefit payment, and such change shall result in a five-year delay from the commencement date in effect prior to such successive deferral election. Note: If you later decide to change the form of distribution from one form of life annuity to another actuarially equivalent form of life annuity (without a term certain feature), you may do so without delaying distribution for 5 years.
NOTE: if you wish to defer receipt of your Supplemental Retirement Benefit, you must first check the lump sum form of benefit option in Section A and then complete Section B.
Under Section B of this form, you may elect to convert your entire Supplemental Retirement Benefit to an EDCP deferral benefit and defer receipt of all or a portion of such converted benefit under the EDCP for a period of not less than five (5) years from the scheduled commencement date of your Supplemental Retirement Benefit payment. If you do not make an election under Section B, you will receive any benefits in accordance with the benefit commencement provisions of the Retention Agreement. However, you may make an election at least 12 months prior to the scheduled commencement date of your Supplemental Retirement Benefit payment to convert your entire benefit to an EDCP deferral benefit and defer receipt of all (not a portion) of such converted benefit under the EDCP for a period of not less than five (5) years from the scheduled commencement date of your Supplemental Retirement Benefit payment. Therefore, if you wish to successively d efer under the EDCP some, but not all, of your converted Supplemental Retirement Benefit, then you should make the conversion election at this time.
Regardless of your deferral decision, the total value of your Incentive Compensation will be subject to immediate Social Security and Medicare taxes (which will be deducted from your pay). Under current law, once taxed, any gains on the amounts deferred will be excluded from future Social Security and Medicare taxes.
If you wish to make an election concerning your Supplemental Retirement Benefit, you must complete, sign, date and return this form to Gina Gremillion in the Total Rewards Department at the following location:
M-MCI-2F | Fax: 601-339-2387 |
Entergy Corporation | Phone: 601-339-2349 |
MCI Building | |
500 Clinton Center Dr | |
Clinton, MS. 39056-5630 |
Please note: To be effective, your completed form must be received by 11:59 p.m. on December 31, 2005.
Section A: Supplemental Retirement Benefit under Retention Agreement
Form of Payment Election
Please check only ONE of the following forms of payment. Note: You must check the lump sum form of payment election if you wish to convert and defer all or a portion of your Supplemental Retirement Benefit under the EDCP. If you do not wish to defer any part of your Supplemental Retirement Benefit, then you may elect a form of benefit other than lump sum. Failure to make an election under this Section A, or checking more than one box under this Section A, shall result in payment of your Supplemental Retirement Benefit under the normal form of payment set forth in your Retention Agreement, (i.e., 50% Joint and Survivor Annuity). You may still elect an alternative form of payment through a successive deferral election, provided such election is made at least 12 months prior to your benefit commencement date, and in which case the benefit commencement date shall be delayed for a period of at least 5 years from the otherwise applicable benefit c ommencement date. Note: If you later decide to change the form of distribution from one form of life annuity to another actuarially equivalent form of life annuity (without a term certain feature), you may do so without delaying distribution for 5 years.
I choose to have my Supplemental Retirement Benefit paid at the time provided for in my Retention Agreement and elect the following form of payment:
Immediate Lump Sum Payment of my entire benefit (elect this option if you wish to receive an immediate lump sum distribution of your Supplemental Retirement Benefit -- or -- if you wish to convert such benefit and defer receipt under the EDCP in accordance with section B of this form);
OR
under Retention Agreement (50% Joint and Survivor Annuity);Normal Form of Payment
OR
(fill in one of the following Surviving Spouse annuity percentages: 66 2/3%, 75%, 90%, or 100%);Optional Joint and ____% Survivor Annuity
OR
(Note: If you elect this form of payment and die before receiving all guaranteed payments, your Surviving Spouse will be your Beneficiary. If you do not have a Surviving Spouse, your Beneficiary will be your estate, unless you designate a contingent Beneficiary below and that contingent Beneficiary survives you.)Optional Life Annuity with 10-Years Certain Option
I hereby designate the following contingent Beneficiary to receive any remaining guaranteed payments in the event I have no Surviving Spouse:
NOTE: Notwithstanding any election you may make, if you are determined to be a "specified employee" within the meaning of Internal Revenue Code section 409A, no distribution may be made to you until at least 6 months after your separation from service, except in the event of your death, in which case this 6-month rule does not apply.
Section B: Conversion and Successive Deferral of Supplemental Retirement Benefit
Note: If you elected any form of distribution in section A above other than the lump sum distribution option, any election under this Section B will be void.
You may elect to convert your Supplemental Retirement Benefit into a benefit under the EDCP ("Converted Amount") and defer all or a portion of that Converted Amount. Note that such election to convert and defer requires that the percentage you elect to defer be deferred for a minimum deferral period of at least 5 years from the date of your scheduled benefit commencement date under the Retention Agreement. After this election period under the transitional relief, you may still elect to convert your Supplemental Retirement Benefit under the EDCP at least 12 months prior to your scheduled benefit commencement date, but you will not be able to defer for less than 5 years anything less than 100% of the Converted Amount.
1. Election to Convert Supplemental Retirement Benefit
Under subsection 1 of this Section B, you may elect to convert your Supplemental Retirement Benefit to a Converted Amount. If you check the box under subsection 1 in this Section B, you should next complete subsections 2 and 3 of this Section B. If you check the box in subsection 1 of Section B, but do not complete subsections 2 and 3, you shall be deemed to have elected payment of your entire Converted Amount in an immediate lump sum benefit payment.
I elect to convert my Supplemental Retirement Benefit into a lump sum deferral under the EDCP. I acknowledge that, by making this conversion election, any amount that otherwise would have been paid to me under my Retention Agreement shall no longer be payable to me thereunder, but instead shall be paid or deferred, in accordance with my deferral elections below, under the EDCP. I understand that if I fail to complete subsections 2 and 3 of this Section B, I shall be deemed to have elected payment of the entire Converted Amount in an immediate lump sum benefit payment.
2. Election of Percentage to Defer
Under subsection 2 of Section B, subject to the requirements set forth below and the terms and conditions of the EDCP, you may irrevocably elect to defer (in one percent increments) any percentage of your Converted Amount. Regardless of your deferral decision, the total value of your Converted Amount will be subject to immediate Social Security and Medicare taxes (which will be deducted from your pay) when you become entitled to such benefits. Under current law, once taxed, any gains on the amounts deferred will be excluded from future Social Security and Medicare taxes. Note: If you do not elect to convert and defer during this election period under the transitional relief, any future conversion will result in deferral for at least 5 years of 100% of the Converted Amount.
I choose to defer ___% (in one percent increments) of my Converted Amount as a deemed investment in the T. Rowe Price Stable Income Fund pursuant to the terms and conditions of the EDCP. I understand that during the deferral period I may reallocate deemed investment amounts into other T. Rowe Price Funds made available under the EDCP. I further understand that any portion of my Converted Amount that I choose not to defer will be paid to me in the form of an immediate lump sum payment.
3. Election of Deferral Receipt Date
Under subsection 3 of this Section B, unless you elect the installment form of payment below, all deferred amounts will be distributed in the form of a lump sum distribution on the deferral receipt date described below.
I choose to defer payment of the above-described percentage of my Converted Amount until the Deferral Receipt Date of the first workday in January next following the completion of five (5) calendar years following my scheduled benefit commencement date as defined under my Retention Agreement, as from time to time amended to comply with section 409A had I not elected to convert and successively defer such sums into the EDCP.
I understand that payment of my deferred Converted Amount balance under the EDCP will be made in the form of a single-sum distribution, unless I elect to receive installment payments in accordance with the terms and conditions of the plan by completing the following election: I elect to receive payment of my deferred Converted Amount balance in _____ (not to exceed 10) annual substantially equal installments, with the first installment payment to be received on the Deferral Receipt Date indicated above.
NOTES: No additional successive deferral elections of the receipt of the Converted Amount balance attributable to this deferral election (i.e., beyond the successive deferral date set forth above) will be available except as permitted by the terms and conditions of the EDCP in effect on or after January 1, 2007.
Signature & Acknowledgment Section
Unless otherwise defined herein, capitalized terms are defined in the Retention Agreement or the EDCP.
I agree that the terms of such amendments or successor plans shall govern the terms of the payment or conversion of my Supplemental Retirement Benefit and the deferral of any Converted Amount notwithstanding the terms of my Retention Agreement and the EDCP in effect upon the date of my execution of this election, but in no event shall such form of distribution be altered from what is elected above nor shall the term of the successive deferral period elected above be less than five (5) years from the date of my scheduled benefit commencement date as defined in the Retention Agreement as from time to time amended and effective on the date of my eligible distribution event. I understand that if I do not change my election through a successive deferral election at least 12 months prior to the date scheduled for commencement of my Supplemental Retirement Benefit, then this election shall become irrevocable on such date, except for timely subsequent successive deferral elections.
I understand that my deferrals are an unfunded and unsecured obligation of my Employer, and any reference to investments is hypothetical and solely for purposes of computing payments due. I further understand that Entergy, my Employer and Entergy's corporate personnel and the Plan Administrator do not make any guarantee of tax deferral or the effect of any deferral elections and cannot determine which deferral elections may fit my personal tax and financial needs. I have had the opportunity to consult my personal tax and financial planning advisors before deciding whether to make a deferral election, and I fully understand the consequences of my election, which is accurately reflected on this form.
I further acknowledge that the payment of my deferral shall be made pursuant to the terms of the EDCP or a successor plan the terms of which may be required to be amended or drafted to comply with the provisions of the American Jobs Creation Act of 2004. I agree that the terms of such amendment or successor plan shall govern the terms of the payment of my deferral notwithstanding the terms of the EDCP in effect upon the date of my execution of this election.
Accepted and Agreed: Signature ________________________________ Date: December ____, 2005.
Plan Administrator's Acknowledgment
By his signature below, the Plan Administrator for the EDCP does hereby recognize the Supplemental Retirement Benefit that may become payable to the Participant in accordance with the terms and conditions of his Retention Agreement as "Incentive Compensation" under the EDCP for deferral eligibility purposes.
Plan Administrator's Signature ________________________________
Exhibit 12(a) |
|||||
Entergy Arkansas, Inc. | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest Charges | $109,523 | $103,210 | $91,221 | $84,430 | $84,992 |
Interest applicable to rentals | 14,563 | 12,762 | 15,425 | 13,171 | 13,911 |
Total fixed charges, as defined | 124,086 | 115,972 | 106,646 | 97,601 | 98,903 |
Preferred dividends, as defined (a) | 12,348 | 11,869 | 14,274 | 12,646 | 12,093 |
Combined fixed charges and preferred dividends, as defined | $136,434 | $127,841 | $120,920 | $110,247 | $110,996 |
Earnings as defined: | |||||
Net Income | $178,185 | $135,643 | $126,009 | $142,210 | $174,635 |
Add: | |||||
Provision for income taxes: | |||||
Total | 105,933 | 71,404 | 105,296 | 89,064 | 96,949 |
Fixed charges as above | 124,086 | 115,972 | 106,646 | 97,601 | 98,903 |
Total earnings, as defined | $408,204 | $323,019 | $337,951 | $328,875 | $370,487 |
Ratio of earnings to fixed charges, as defined | 3.29 | 2.79 | 3.17 | 3.37 | 3.75 |
Ratio of earnings to combined fixed charges and | |||||
preferred dividends, as defined | 2.99 | 2.53 | 2.79 | 2.98 | 3.34 |
- ------------------------ | |||||
(a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. |
Exhibit 12(b) |
|||||
Entergy Gulf States, Inc. | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest charges | $174,368 | $144,840 | $157,343 | $133,598 | $126,788 |
Interest applicable to rentals | 18,520 | 16,483 | 16,694 | 13,707 | 8,832 |
Total fixed charges, as defined | 192,888 | 161,323 | 174,037 | 147,305 | 135,620 |
Preferred dividends, as defined (a) | 13,017 | 6,190 | 6,485 | 6,991 | 6,444 |
Combined fixed charges and preferred dividends, as defined | $205,905 | $167,513 | $180,522 | $154,296 | $142,064 |
Earnings as defined: | |||||
Income (loss) from continuing operations before extraordinary items and | |||||
the cumulative effect of accounting changes | $179,444 | $174,078 | $63,895 | $192,264 | $206,497 |
Add: | |||||
Income Taxes | 82,038 | 65,997 | 24,249 | 108,288 | 110,270 |
Fixed charges as above | 192,888 | 161,323 | 174,037 | 147,305 | 135,620 |
Total earnings, as defined (b) | $454,370 | $401,398 | $262,181 | $447,857 | $452,387 |
Ratio of earnings to fixed charges, as defined | 2.36 | 2.49 | 1.51 | 3.04 | 3.34 |
Ratio of earnings to combined fixed charges and | |||||
preferred dividends, as defined | 2.21 | 2.40 | 1.45 | 2.90 | 3.18 |
(a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. |
Exhibit 12(c) | |||||
Entergy Louisiana Holdings, Inc. | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest | $116,076 | $100,667 | $76,756 | $74,141 | $85,418 |
Interest applicable to rentals | 7,951 | 6,496 | 6,359 | 5,595 | 4,585 |
Total fixed charges, as defined | 124,027 | $107,163 | $83,115 | $79,736 | $90,003 |
Preferred dividends, as defined (a) | 12,374 | 10,647 | $11,189 | $10,899 | $11,789 |
Combined fixed charges and preferred dividends, as defined | $136,401 | $117,810 | $94,304 | $90,635 | $101,792 |
Earnings as defined: | |||||
Net Income | $132,550 | $144,709 | $146,154 | $127,495 | $128,082 |
Add: | |||||
Provision for income taxes: | |||||
Total Taxes | 86,287 | 84,765 | 97,408 | 79,475 | 96,819 |
Fixed charges as above | 124,027 | 107,163 | 83,115 | 79,736 | 90,003 |
Total earnings, as defined | $342,864 | $336,637 | $326,677 | $286,706 | $314,904 |
Ratio of earnings to fixed charges, as defined | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 |
Ratio of earnings to combined fixed charges and | |||||
preferred dividends, as defined | 2.51 | 2.86 | 3.46 | 3.16 | 3.09 |
- ------------------------ | |||||
(a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. | |||||
Exhibit 12(d) |
|||||
Entergy Louisiana, LLC | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest | $116,076 | $100,667 | $76,756 | $74,141 | $85,418 |
Interest applicable to rentals | 7,951 | 6,496 | 6,359 | 5,595 | 4,585 |
Total fixed charges, as defined | $124,027 | $107,163 | $83,115 | $79,736 | $90,003 |
Earnings as defined: | |||||
Net Income | $132,550 | $144,709 | $146,154 | $127,495 | $128,082 |
Add: | |||||
Provision for income taxes: | |||||
Total Taxes | 86,287 | 84,765 | 97,408 | 79,475 | 96,819 |
Fixed charges as above | 124,027 | 107,163 | 83,115 | 79,736 | 90,003 |
Total earnings, as defined | $342,864 | $336,637 | $326,677 | $286,706 | $314,904 |
Ratio of earnings to fixed charges, as defined | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 |
Exhibit 12(e) | |||||
Entergy Mississippi, Inc. | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest | $50,991 | $45,464 | $47,464 | $44,637 | $43,707 |
Interest applicable to rentals | 1,849 | 1,916 | 1,880 | 1,162 | 771 |
Total fixed charges, as defined | 52,840 | $47,380 | $49,344 | $45,799 | $44,478 |
Preferred dividends, as defined (a) | 4,674 | 4,490 | 5,099 | 5,067 | 5,129 |
Combined fixed charges and preferred dividends, as defined | $57,514 | $51,870 | $54,443 | $50,866 | $49,607 |
Earnings as defined: | |||||
Net Income | $39,620 | $52,408 | $67,058 | $73,497 | $62,103 |
Add: | |||||
Provision for income taxes: | |||||
Total income taxes | 20,464 | 17,846 | 34,431 | 37,040 | 33,952 |
Fixed charges as above | 52,840 | 47,380 | 49,344 | 45,799 | 44,478 |
Total earnings, as defined | $112,924 | $117,634 | $150,833 | $156,336 | $140,533 |
Ratio of earnings to fixed charges, as defined | 2.14 | 2.48 | 3.06 | 3.41 | 3.16 |
Ratio of earnings to combined fixed charges and | |||||
preferred dividends, as defined | 1.96 | 2.27 | 2.77 | 3.07 | 2.83 |
- ------------------------ | |||||
(a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. | |||||
Exhibit 12(f) |
|||||
Entergy New Orleans, Inc. | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest | $19,661 | $27,950 | $17,786 | $16,610 | $13,555 |
Interest applicable to rentals | 977 | 1,043 | 910 | 644 | 426 |
Total fixed charges, as defined | 20,638 | 28,993 | 18,696 | 17,254 | 13,981 |
Preferred dividends, as defined (a) | 2,898 | 2,736 | 1,686 | 1,545 | 1,172 |
Combined fixed charges and preferred dividends, as defined | $23,536 | $31,729 | $20,382 | $18,799 | $15,153 |
Earnings as defined: | |||||
Net Income | ($2,195) | ($230) | $7,859 | $28,072 | $1,250 |
Add: | |||||
Provision for income taxes: | |||||
Total | (4,396) | (422) | 5,875 | 16,868 | 1,790 |
Fixed charges as above | 20,638 | 28,993 | 18,696 | 17,254 | 13,981 |
Total earnings, as defined | $14,047 | $28,341 | $32,430 | $62,194 | $17,021 |
Ratio of earnings to fixed charges, as defined | 0.68 | 0.98 | 1.73 | 3.60 | 1.22 |
Ratio of earnings to combined fixed charges and | |||||
preferred dividends, as defined | 0.60 | 0.89 | 1.59 | 3.31 | 1.12 |
- ------------------------ | |||||
(a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. | |||||
(b) For Entergy New Orleans, earnings for the twelve months ended December 31, 2001 were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively. | |||||
(c) For Entergy New Orleans, earnings for the twelve months ended December 31, 2002 were not adequate to cover combined fixed charges and preferred dividends by $0.7 million and $3.4 million, respectively. |
Exhibit 12(g) |
|||||
System Energy Resources, Inc. | |||||
Computation of Ratios of Earnings to Fixed Charges and | |||||
Ratios of Earnings to Fixed Charges | |||||
2001 | 2002 | 2003 | 2004 | 2005 | |
Fixed charges, as defined: | |||||
Total Interest | $138,018 | $76,639 | $64,620 | $58,928 | $60,424 |
Interest applicable to rentals | 4,458 | 3,250 | 3,793 | 3,426 | 3,039 |
Total fixed charges, as defined | $142,476 | $79,889 | $68,413 | $62,354 | $63,463 |
Earnings as defined: | |||||
Net Income | $116,355 | $103,352 | $106,003 | $105,948 | $111,644 |
Add: | |||||
Provision for income taxes: | |||||
Total | 43,761 | 76,177 | 75,845 | 78,013 | 69,343 |
Fixed charges as above | 142,476 | 79,889 | 68,413 | 62,354 | 63,463 |
Total earnings, as defined | $302,592 | $259,418 | $250,261 | $246,315 | $244,450 |
Ratio of earnings to fixed charges, as defined | 2.12 | 3.25 | 3.66 | 3.95 | 3.85 |
Exhibit 21
Name of Company |
Entergy Corporation |
Entergy Arkansas, Inc. |
System Fuels, Inc |
The Arklahoma Corporation |
Arkansas Power & Light Company |
Entergy Gulf States, Inc. |
Varibus LLC (Varibus) |
Prudential Oil & Gas LLC |
Southern Gulf Railway LLC |
GSG&T Inc. |
Gulf States Utility Company |
Entergy Louisiana Holdings, Inc |
Entergy Louisiana Properties, LLC |
Entergy Louisiana, LLC |
Louisiana Power & Light Company |
Entergy Mississippi, Inc |
System Fuels, Inc |
Jackson Gas Light Company |
Entergy Power & Light Company |
The Light, Heat and Water Company of Jackson, Mississippi |
Mississippi Power & Light Company |
Entergy New Orleans, Inc) |
System Fuels, Inc. |
New Orleans Public Service, Inc |
System Energy Resources, Inc |
Entergy Services, Inc. |
Entergy Operations, Inc |
Entergy Power, Inc. |
Entergy Enterprises, Inc. |
Entergy Retail Holding Company) |
Entergy Retail Texas, Inc. |
Entergy Solutions Ltd. |
Entergy Solutions Supply Ltd. |
Entergy Solutions Ltd. |
Entergy Solutions Supply Ltd. |
Entergy Retail Louisiana LLC-A) |
Entergy Solutions Management Services LLC) |
Entergy Ventures Holding Company, Inc.) |
Entergy Commerce, Inc. |
Entergy Operations Services, Inc. |
EntergyKoontz, |
Entergy Operations Services North Carolina, Inc. |
Entergy Procurement Exchange Holding Corporation |
Entergy Resources, Inc. |
Entergy Thermal, LLC |
Entergy Solutions District Cooling LP |
Entergy Solutions District GP, |
Entergy Solutions District Cooling |
Entergy Nuclear, Inc. |
TLG Services, Inc |
Entergy Nuclear PFS Company |
Entergy Nuclear Potomac |
Nu Start Energy Development, LLC) |
Entergy Nuclear Holding Company # 1 |
Entergy Nuclear Generation Company |
Entergy Nuclear New York Investment Company I |
Entergy Nuclear Indian Point 3, LLC |
Entergy Nuclear FitzPatrick, LLC |
Entergy Nuclear Holding Company # 2 |
Entergy Nuclear Operations, Inc |
Entergy Nuclear Fuels Company |
Entergy Nuclear Holding Company |
Entergy Nuclear Holding Company # 3, |
Entergy Nuclear Investment Company, |
Entergy Nuclear Indian Point 2, LLC |
Entergy Nuclear Capital Management I, |
Entergy Nuclear Nebraska, LLC |
Entergy Nuclear Vermont Investment Company, LLC |
Entergy Nuclear Vermont Yankee, LLC |
Entergy Nuclear Capital Management II, |
Entergy Nuclear Finance Holding, Inc |
Entergy Nuclear Finance, LLC |
Entergy Technology Holding Company |
Entergy Technology Company |
Entergy International Holdings LTD. LLC |
Entergy Power Gas Holdings Corporation |
Entergy Power Gas Operations Corporation |
Entergy Power International Holdings |
EK Holding III, LLC |
EKLP, LLC |
Entergy-Koch, LP |
Entergy Power Generation, LLC |
Entergy-Koch, LP |
Entergy Power Ventures Corp. I |
Entergy Power Ventures, L.P |
Entergy Asset Management, Inc. |
EWO Wind II, LLC |
Top Deer Wind Ventures LLC |
Northern Iowa Windpower, LLC |
WindEnergy LP, LLC |
Llano Estacado Wind, LP |
WindEnergy GP LLC |
Llano Estacado Wind, LP |
Warren Power, LLC |
Top Deer Wind Ventures |
Entergy Asset Management, Inc |
Entergy International LTD LLC |
Entergy International Investments No. 2 LTD LLC |
Entergy UK Holdings Limited |
Entergy UK Limited |
Entergy UK Enterprises Limited |
Entergy Asset Management, Inc. |
Entergy Global, LLC |
Entergy Nuclear Holding Company #1 |
Entergy Power Development Corporation |
Entergy Power Generation, LLC |
EWO Marketing, L.P. |
EWO GP LLC |
EWO Marketing, L.P. |
Entergy Power International Holdings Corporation) |
Entergy Power Generation, LLC |
Entergy Global Power Operations Corporation |
Entergy Power Operations U.S., Inc. |
Entergy Power Development Corporation |
EN Services II |
EN Services L.P. |
Entergy Global Trading Holdings, Ltd |
Entergy Power Gas Operations Corporation |
Entergy Nuclear Power Marketing, LLC |
Entergy Power Development Corporation |
Entergy Asset Management, Inc. |
Entergy Investments Holding Company, Inc |
Entergy Power Ventures, L.P. |
EN Services, L.P. |
Entergy Power RS Holding Company, LLC |
Entergy Power RS, LLC |
RS Cogen, LLC |
Entergy Power BJE Holding, Ltd. |
Bom Jardim Energetica LTDA |
Entergy Power BJE, Ltd |
Bom Jardim Energetica LTDA |
Entergy Power Operations Holdings Ltd |
Entergy Power Hull, Ltd. |
Entergy Europe Operations Limited |
Entergy Power Operations UK Limited |
Entergy Power Properties (Kingsnorth), Ltd |
Damhead Finance LDC |
Damhead Finance (Netherlands Antilles) N.V. |
Entergy Mississippi Turbine Company |
Entergy Power Bulgaria Ltd |
Entergy Power Netherlands B.V |
Maritza East 3 Operating Company AD |
Maritza East III Power Holdings B.V. |
Maritza East III Power Company AD |
Entergy Power Netherlands Company BV |
Entergy Power Services Italia, S.r.L. |
Sabinas Power Company, B.V. (6) |
Entergy Power Services Italia S.r.L. |
Entergy Power Damhead Creek Holding II, Ltd. |
Entergy Europe Operations Limited |
Entergy Power Hull, Ltd. |
Entergy Europe Operations Limited |
Entergy Power Operations Holdings Ltd. |
EP Edegel, Inc. |
Entergy Asset Management, Inc |
Entergy Power Maritza Holding Limited |
Entergy Power E & C Holdings, LLC |
EntergyShaw, LLC |
Exhibit 23(b)
Consent of Independent Auditors
We consent to the incorporation by reference in Post-Effective Amendments No. 3 and 5A on Form S-8 to the Registration Statement on Form S-4 (No. 33-54298) and the related prospectuses of Entergy Corporation, Registration Statements on Form S-3 (Nos. 333-02503 and 333-22007) of Entergy Corporation, and Registration Statements on Form S-8 (Nos. 333-98179, 333-90914, 333-75097, 333-55692, and 333-68950) of Entergy Corporation of our report dated March 1, 2005, with respect to the consolidated financial statements of Entergy-Koch, LP as of December 31, 2004 and 2003 and for the three year period ended December 31, 2004 included in Exhibit 99(b) of this Annual Report on Form 10-K of Entergy Corporation for the year ended December 31, 2005.
/s/ Ernst & Young LLP
Houston, Texas
March 8, 2006
Exhibit 24
March 9, 2006
TO: Nathan E. Langston
Paul A. Castanon
Re: Power of Attorney - 2005 Form 10-K
Entergy Corporation, referred to herein as the Company, will file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2005, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
The Company and the undersigned persons, in their respective capacities as directors and/or officers of the Company, as specified in Attachment I, do each hereby make, constitute and appoint Nathan Langston and Paul A. Castanon and each of them, their true and lawful Attorneys (with full power of substitution) for each of the undersigned and in his or her name, place and stead to sign and cause to be filed with the Securities and Exchange Commission the aforementioned Annual Report on Form 10-K and any amendments thereto.
Yours very truly,
ENTERGY CORPORATION
By: /s/ J. Wayne Leonard
J. Wayne Leonard
Chief Executive Officer and
Director
/s/ Maureen S. Bateman |
/s/ Stuart L. Levenick |
|
Maureen S. Bateman |
Stuart L. Levenick |
|
Director |
Director |
|
/s/ W. Frank Blount |
/s/ Robert v.d. Luft |
|
W. Frank Blount |
Robert v.d. Luft |
|
Director |
Chairman of the Board |
|
/s/ Simon D. deBree |
/s/ Kathleen A. Murphy |
|
Simon D. deBree |
Kathleen A. Murphy |
|
Director |
Director |
|
/s/ Claiborne P. Deming |
/s/ James R. Nichols |
|
Claiborne P. Deming |
James R. Nichols |
|
Director |
Director |
|
/s/ Gary W. Edwards |
/s/ William A. Percy, II |
|
Gary W. Edwards |
William A. Percy, II |
|
Director |
Director |
|
/s/ Alexis M. Herman |
/s/ W. J. Tauzin |
|
Alexis M. Herman |
W. J. "Billy" Tauzin |
|
Director |
Director |
|
/s/ Donald C. Hintz |
/s/ Steven V. Wilkinson |
|
Donald C. Hintz |
Steven V. Wilkinson |
|
Director |
Director |
|
/s/ J. Wayne Leonard |
/s/ Leo P. Denault |
|
J. Wayne Leonard |
Leo P. Denault |
|
Chief Executive Officer and Director |
Executive Vice President and Chief Financial Officer |
ATTACHMENT I
Entergy Corporation
Chief Executive Officer - J. Wayne Leonard (principal executive officer)
Executive Vice President and Chief Financial Officer - Leo P. Denault (principal financial officer)
Directors - Maureen S. Bateman, W. Frank Blount, Simon D. deBree, Claiborne P. Deming, Gary W. Edwards, Alexis M. Herman, Donald C. Hintz, J. Wayne Leonard, Stuart L. Levenick, Robert v.d. Luft, Kathleen A. Murphy, James R. Nichols, William A. Percy, II, W. J. "Billy" Tauzin, and Steven V. Wilkinson
March 9, 2006
TO: Nathan E. Langston
Paul A. Castanon
Re: Power of Attorney - 2005 Form 10-K
Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Louisiana Holdings, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. (collectively referred to herein as the Companies) will each file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2005, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
The Companies and the undersigned persons, in their respective capacities as directors and/or officers of the Companies, as specified in Attachment I, do each hereby make, constitute and appoint Nathan E. Langston and Paul A. Castanon and each of them, their true and lawful Attorneys (with full power of substitution) for each of the undersigned and in his or her name, place and stead to sign and cause to be filed with the Securities and Exchange Commission the aforementioned Annual Report on Form 10-K and any amendments thereto.
Yours very truly,
ENTERGY ARKANSAS, INC.
ENTERGY GULF STATES, INC.
ENTERGY LOUISIANA, LLC
ENTERGY LOUISIANA HOLDINGS, INC.
ENTERGY MISSISSIPPI, INC.
ENTERGY NEW ORLEANS, INC.
SYSTEM ENERGY RESOURCES, INC.
/s/ Hugh T. McDonald |
/s/ E. Renae Conley |
|
HUGH T. MCDONALD |
E. RENAE CONLEY |
|
/s/ Joseph F. Domino |
/s/ Carolyn C. Shanks |
|
JOSEPH F. DOMINO |
CAROLYN C. SHANKS |
|
/s/ Daniel F. Packer |
/s/ Gary J. Taylor |
|
DANIEL F. PACKER |
GARY J. TAYLOR |
|
/s/ Michael D. Bakewell |
||
MICHAEL D. BAKEWELL |
/s/ Joseph F. Domino |
/s/ Carolyn C. Shanks |
|
Joseph F. Domino |
Carolyn C. Shanks |
|
Director, Chairman of the Board, President and Chief Executive Officer - Texas of Entergy Gulf States, Inc. |
Director, Chairman of the Board, President and Chief Executive Officer of Entergy Mississippi, Inc. |
|
/s/ Mark T. Savoff |
/s/ Hugh T. McDonald |
|
Mark T. Savoff |
Hugh T. McDonald |
|
Director of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC and Entergy Mississippi, Inc. |
Director, Chairman of the Board, President and Chief Executive Officer of Entergy Arkansas, Inc. |
|
/s/ Richard J. Smith |
/s/ Gary J. Taylor |
|
Richard J. Smith |
Gary J. Taylor |
|
Director of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC and Entergy Mississippi, Inc. |
Director, Chairman of the Board, President and Chief Executive Officer of System Energy Resources, Inc. |
|
/s/ Daniel F. Packer |
/s/ Leo P. Denault |
|
Daniel F. Packer |
Leo P. Denault |
|
Director, Chairman of the Board, President and Chief Executive Officer of Entergy New Orleans, Inc. |
Director of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc. and System Energy Resources, Inc. |
|
/s/ E. Renae Conley |
/s/ Steven C. McNeal |
|
E. Renae Conley |
Steven C. McNeal |
|
/s/ Tracie L. Boutte |
/s/ Roderick K. West |
|
Tracie L. Boutte |
Roderick K. West |
|
/s/ Michael D. Bakewell |
/s/ Robert A. Malone |
|
Michael D. Bakewell |
Robert A. Malone |
|
/s/. William M. Mohl |
/s/ Theodore H. Bunting |
|
William M. Mohl |
Theodore H. Bunting |
|
/s/ Jay A. Lewis |
||
Jay A. Lewis |
ATTACHMENT I
Entergy Arkansas, Inc.
Chairman of the Board, President and Chief Executive Officer - Hugh T. McDonald (principal executive officer); Vice President and Chief Financial Officer-Utility Operations Group - - Jay A. Lewis (principal financial officer).
Directors - Hugh T. McDonald, Leo P. Denault, Mark T. Savoff and Richard J. Smith
Entergy Gulf States, Inc.
Chairman of the Board, President and Chief Executive Officer-Texas - Joseph F. Domino (principal executive officer); President and Chief Executive Officer-Louisiana - - E. Renae Conley (principal executive officer), Vice President and Chief Financial Officer-Utility Operations Group - - Jay A. Lewis (principal financial officer).
Directors - Joseph F. Domino, E. Renae Conley, Leo P. Denault, Mark T. Savoff and Richard J. Smith
Entergy Louisiana, LLC
Chair of the Board, President and Chief Executive Officer - E. Renae Conley (principal executive officer); Vice President and Chief Financial Officer-Utility Operations Group - - Jay A. Lewis (principal financial officer).
Directors - E. Renae Conley, Leo P. Denault, Mark T. Savoff and Richard J. Smith
Entergy Louisiana Holdings, Inc.
President and Chief Executive Officer - Michael D. Bakewell (principal executive officer); Treasurer - - Robert A. Malone (principal financial officer).
Directors - Michael D. Bakewell, Robert A. Malone and William M. Mohl
Entergy Mississippi, Inc.
Chairman of the Board, President and Chief Executive Officer - Carolyn C. Shanks (principal executive officer); Vice President and Chief Financial Officer-Utility Operations Group - - Jay A. Lewis (principal financial officer).
Directors - Carolyn C. Shanks, Leo P. Denault, Mark T. Savoff and Richard J. Smith
Entergy New Orleans, Inc.
Chairman of the Board, President and Chief Executive Officer - Daniel F. Packer (principal executive officer); Vice President and Chief Financial Officer-Utility Operations Group - - Jay A. Lewis (principal financial officer).
Directors - Daniel F. Packer, Tracie L. Boutte and Roderick K. West
System Energy Resources, Inc.
Chairman of the Board, President and Chief Executive Officer - Gary J. Taylor (principal executive officer); Vice President and Chief Financial Officer-Nuclear Operations - - Theodore H. Bunting (principal financial officer).
Directors - Gary J. Taylor, Leo P. Denault and Steven C. McNeal
Exhibit 31(a)
CERTIFICATIONS
I, J. Wayne Leonard, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ J. Wayne Leonard Chief Executive Officer of Entergy Corporation |
Date: March 9, 2006
Exhibit 31(b)
CERTIFICATIONS
I, Leo P. Denault, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Leo P. Denault Executive Vice President and Chief Financial Officer of Entergy Corporation |
Date: March 9, 2006
Exhibit 31(c)
CERTIFICATIONS
I, Hugh T. McDonald, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Arkansas, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Hugh T. McDonald Chairman, President, and Chief Executive Officer of Entergy Arkansas, Inc. |
Date: March 9, 2006
Exhibit 31(d)
CERTIFICATIONS
I, Joseph F. Domino, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Gulf States, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Joseph F. Domino Chairman, President and Chief Executive Officer-Texas of Entergy Gulf States, Inc. |
Date: March 9, 2006
Exhibit 31(e)
CERTIFICATIONS
I, Michael D. Bakewell, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Louisiana Holdings, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Michael D. Bakewell President and Chief Executive Officer of Entergy Louisiana Holdings, Inc. |
Date: March 9, 2006
Exhibit 31(f)
CERTIFICATIONS
I, E. Renae Conley, certify that: |
|
1. |
I have reviewed these annual reports on Form 10-K of Entergy Gulf States, Inc. and Entergy Louisiana, LLC; |
2. |
Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports; |
3. |
Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in these reports; |
4. |
The registrants' other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by these reports based on such evaluation; and |
|
d) Disclosed in these reports any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and |
|
5. |
The registrants' other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. |
/s/ E. Renae Conley |
Date: March 9, 2006
Exhibit 31(g)
CERTIFICATIONS
I, Carolyn C. Shanks, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Mississippi, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Carolyn C. Shanks Chairman, President, and Chief Executive Officer of Entergy Mississippi, Inc. |
Date: March 9, 2006
Exhibit 31(h)
CERTIFICATIONS
I, Daniel F. Packer, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy New Orleans, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Daniel F. Packer Chairman, President, and Chief Executive Officer of Entergy New Orleans, Inc. |
Date: March 9, 2006
Exhibit 31(i)
CERTIFICATIONS
I, Gary J. Taylor, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of System Energy Resources, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Gary J. Taylor Chairman, President, and Chief Executive Officer of System Energy Resources, Inc. |
Date: March 9, 2006
Exhibit 31(j)
CERTIFICATIONS
I, Jay A. Lewis, certify that: |
|
1. |
I have reviewed these annual reports on Form 10-K of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc.; |
2. |
Based on my knowledge, these reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by these reports; |
3. |
Based on my knowledge, the financial statements, and other financial information included in these reports, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in these reports; |
4. |
The registrants' other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which these reports are being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in these reports our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by these reports based on such evaluation; and |
|
d) Disclosed in these reports any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and |
|
5. |
The registrants' other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. |
/s/ Jay A. Lewis Vice President and Chief Financial Officer of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc. |
Date: March 9, 2006
Exhibit 31(k)
CERTIFICATIONS
I, Robert A. Malone, certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of Entergy Louisiana Holdings, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Robert A. Malone Treasurer of Entergy Louisiana Holdings, Inc. |
Date: March 9, 2006
Exhibit 31(l)
CERTIFICATIONS
I, Theodore H. Bunting, Jr., certify that: |
|
1. |
I have reviewed this annual report on Form 10-K of System Energy Resources, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Theodore H. Bunting, Jr. Vice President and Chief Financial Officer of System Energy Resources, Inc. |
Date: March 9, 2006
Exhibit 32(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, J. Wayne Leonard, Chief Executive Officer of Entergy Corporation (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ J. Wayne Leonard Chief Executive Officer of Entergy Corporation |
Date: March 9, 2006
Exhibit 32(b)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Leo P. Denault, Chief Financial Officer of Entergy Corporation (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Leo P. Denault Executive Vice President and Chief Financial Officer of Entergy Corporation |
Date: March 9, 2006
Exhibit 32(c)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,
Hugh T. McDonald, Chairman, President and Chief Executive Officer of Entergy Arkansas, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Hugh T. McDonald Chairman, President, and Chief Executive Officer of Entergy Arkansas, Inc. |
Date: March 9, 2006
Exhibit 32(d)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,
Joseph F. Domino, Chairman, President and Chief Executive Officer-Texas of Entergy Gulf States, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Joseph F. Domino Chairman, President and Chief Executive Officer-Texas of Entergy Gulf States, Inc. |
Date: March 9, 2006
Exhibit 32(e)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael D. Bakewell, President and Chief Executive Officer of Entergy Louisiana Holdings, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Michael D. Bakewell President and Chief Executive Officer of Entergy Louisiana Holdings, Inc. |
Date: March 9, 2006
Exhibit 32(f)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, E. Renae Conley, President and Chief Executive Officer-Louisiana of Entergy Gulf States, Inc. and Chair of the Board, President and Chief Executive Officer of Entergy Louisiana, LLC (the "Companies"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of each of the Companies for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in each Report fairly presents, in all material respects, the financial condition and results of operations of each respective Company as of the dates and for the periods presented in each Report. |
/s/ E. Renae Conley |
Date: March 9, 2006
Exhibit 32(g)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I,
Carolyn C. Shanks, Chairman, President and Chief Executive Officer of Entergy Mississippi, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Carolyn C. Shanks |
Date: March 9, 2006
Exhibit 32(h)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel F. Packer, Chairman, President and Chief Executive Officer of Entergy New Orleans, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Daniel F. Packer |
Date: March 9, 2006
Exhibit 32(i)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary J. Taylor, Chairman, President and Chief Executive Officer of System Energy Resources, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Gary J. Taylor Chairman, President, and Chief Executive Officer of System Energy Resources, Inc. |
Date: March 9, 2006
Exhibit 32(j)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jay A. Lewis, Vice President and Chief Financial Officer of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc. (the "Companies"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of each of the Companies for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in each Report fairly presents, in all material respects, the financial condition and results of operations of each respective Company as of the dates and for the periods presented in each Report. |
/s/ Jay A. Lewis Vice President and Chief Financial Officer of Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., and Entergy New Orleans, Inc. |
Date: March 9, 2006
Exhibit 32(k)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Malone, Treasurer of Entergy Louisiana Holdings, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Robert A. Malone Treasurer of Entergy Louisiana Holdings, Inc. |
Date: March 9, 2006
Exhibit 32(l)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Theodore H. Bunting, Jr., Vice President and Chief Financial Officer of System Energy Resources, Inc. (the "Company"), certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the Report. |
/s/ Theodore H. Bunting, Jr. Vice President and Chief Financial Officer of System Energy Resources, Inc. |
Date: March 9, 2006
Consolidated Financial Statements
Year ended December 31, 2005
(unaudited)
Entergy - Koch, LP
December 31, 2005
(unaudited)
(In Thousands)
Assets | ||
Current assets: | ||
Cash and cash equivalents | $ 18,550 | |
Note receivable from Partner | 130,000 | |
Other | 7,818 | |
Total current assets | 156,368 | |
Noncurrent assets: | ||
Restricted cash - escrow | 205,144 | |
Other | 13,256 | |
Total noncurrent assets | 218,400 | |
Total assets | $ 374,768 | |
Liabilities and Partners' Capital | ||
Current liabilities: | ||
Accounts payable | $ 11,863 | |
Accrued liabilities | 15,887 | |
Total current liabilities | 27,750 | |
Noncurrent liabilities: | ||
Deferred gain on sale of trading assets | 205,144 | |
Other | 1,594 | |
Total noncurrent liabilities | 206,738 | |
Commitments and contingencies (Note 4) | ||
Partners' capital: | ||
General partner | 1,402 | |
Limited partners | 138,878 | |
Total partners' capital | 140,280 | |
Total liabilities and partners' capital | $ 374,768 | |
See accompanying notes. |
Entergy - Koch, LP
Consolidated Statement of Income
Year ended December 31, 2005
(unaudited)
(In Thousands)
Operating Revenues | $ - |
General and administrative expense | 6,679 |
Operating (loss) income | (6,679) |
Other income and expense: | |
Gain on pipeline insurance settlements | 17,311 |
Other income(expense) | 8,762 |
Total other income (expense) | 26,073 |
Net income | $ 19,394 |
See accompanying notes. |
Entergy - Koch, LP
Consolidated Statement of Changes in Partners' Capital
Year ended December 31, 2005
(unaudited)
(In Thousands)
General Partner |
Limited Partners |
Total |
|
Balance at December 31, 2004 |
$ 1,694 |
$ 167,747 |
$ 169,441 |
Plus: net income |
194 |
19,200 |
19,394 |
Less: distribution to partners |
486 |
48,069 |
48,555 |
Balance at December 31, 2005 |
1,402 |
138,878 |
$ 140,280 |
Entergy - Koch, LP
Consolidated Statement of Cash Flows
For the year ended December 31, 2005
(unaudited)
(In Thousands)
Cash flows from operating activities: | ||
Net income |
$ 19,394 |
|
Adjustments to
reconcile net income to net cash flows provided by (used in) operating activities: |
||
Decrease in accounts receivable |
45,856 |
|
(Decrease) increase in accounts payable, trade |
(26,871) |
|
(Decrease) increase in accrued liabilities |
(51,170) |
|
Change in other current assets and liabilities, net |
(2,959) |
|
Net changes in working capital |
(35,144) |
|
Change in net other noncurrent assets and liabilities |
(27,197) |
|
Net cash flows provided by (used in) operating activities |
(42,947) |
|
Cash flows from investing activities: | ||
Increase in note receivable, partner |
(130,000) |
|
Net cash flows provided by (used in) investing activities |
(130,000) |
|
Cash flows from financing activities: | ||
Distribution to partners |
(48,555) |
|
Net cash flows provided by (used in) financing activities |
(48,555) |
|
Net change in cash and cash equivalents |
221,502 |
|
Cash and cash equivalents, beginning of year |
240,052 |
|
Cash and cash equivalents, end of year |
$ 18,550 |
|
See accompanying notes. |
Entergy - Koch, LP
December 31, 2005
(unaudited)
1. Organization and Nature of Operations
Entergy - Koch, LP and subsidiaries ("EKLP" or the "Partnership"), is a limited partnership indirectly owned by subsidiaries of Entergy Corporation ("Entergy") and Koch Industries, Inc. ("Koch") (collectively, the "Partners"). Subsidiaries of Entergy and Koch own 99% of the Partnership through limited partner interests, and the remaining 1% of the Partnership is owned by the general partner, EKLP, LLC, a company owned 50% by EK Holding III, LLC (an Entergy subsidiary), and 50% by Koch Energy, Inc. (a Koch subsidiary). EKLP, LLC, is managed by a board of directors, with each partner having equal representation.
Pursuant to the Agreement of Limited Partnership, dated January 31, 2001 (the "Partnership Agreement"), general distributions are equally shared by the Partners; however, the Partners disproportionately share in certain profits and special allocations, which occur periodically and would occur upon liquidation. The Partnership Agreement also requires that distributions of cash be made quarterly, if EKLP, LLC, determines there is excess cash, based on EKLP management's recommendation. EKLP was formed to combine certain natural gas and power trading contracts and assets of Entergy with the natural gas pipeline business and the natural gas, power, and weather trading business of Koch.
On November 1, 2004, EKLP sold the assets and liabilities of its trading business to Merrill Lynch Commodities, Inc. ("MLCI") for a purchase price of $800 million plus the fair value of all trading assets and liabilities sold. The agreement called for EKLP to establish an escrow account for $200 million that EKLP is entitled to, two years from closing, contingent on certain events that may preclude former EKLP executives from being able to continue their services with MLCI. The $200 million contingent gain has been deferred and is classified as restricted cash - escrow in noncurrent assets, and is recorded as a noncurrent liability on the accompanying consolidated balance sheet. Interest earned on the restricted cash accrues to the benefit of EKLP, pending resolution of the contingency. Such interest amounts to $5.1 million as of December 31, 2005 and is recorded consistent with the contingent gain.
On December 29, 2004, EKLP sold the stock of its pipeline subsidiary to TGT Pipeline, LLC, excluding the rights to proceeds from certain preexisting casualty insurance claims on the pipeline. During 2005, EKLP received the proceeds from such preexisting claims and recorded a gain of $17.3 million.
EKLP's future operations will consist of winding down the affairs of the Partnership.
The proceeds from the combined sales were used to retire all of EKLP's senior notes and other credit facilities. Remaining proceeds, in excess of future working capital needs and minimum contractual capitalization requirements, as determined by EKLP, are distributed to the Partners.
2. Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the accounts of all of the Partnership's wholly owned subsidiaries after the elimination of significant intercompany transactions and balances. Investments in entities that are not controlled by the Partnership are accounted for using either the cost or equity method, as appropriate. These investments are regularly reviewed for impairment and propriety of current accounting treatment.
Cash and Cash Equivalents - Cash and cash equivalents consist primarily of cash on deposit, certificates of deposit, and money market accounts with original maturities of three months or less. All highly liquid investments with original maturities of three months or less are classified as cash and cash equivalents.
Income Taxes - The Partnership's consolidated financial statements reflect no provision for United States federal and state income taxes since such taxes, if any, are the liabilities of the Partners..
Use of Estimates - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make various assumptions and estimates that affect amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
3. Fair Value of Financial Instruments
On December 15, 2005 the Partnership loaned $130 million to a subsidiary of Koch in exchange for a ten-year note. The note bears interest at a variable rate equal to the monthly London Inter-Bank Offered Rate plus ten basis points (one tenth of one percent). Koch has agreed for a period of one year to repurchase all or a portion of the note at its face value prior to its stated maturity should EKLP not have sufficient liquidity. Accordingly, the note has been classified as a current asset in the accompanying balance sheet.
At December 31, 2005, the carrying amounts of certain financial instruments held by the Partnership, principally note receivable and cash equivalents are representative of fair value because of the short-term maturity of these instruments.
4. Commitments and Contingencies
Purchase Agreement Indemnifications - In the purchase agreements for the sale of its trading assets and liabilities and pipeline subsidiary, EKLP has agreed to indemnify the respective purchasers for certain potential losses relating to any breaches of the sellers' representations, warranties and obligations under each of the purchase agreements. EKLP does not expect any material claims under these indemnification obligations, but to the extent that any are asserted and paid, subsequent adjustments to the realized gains on these sales will be required.
Litigation - The Partnership is party to various legal actions arising in the normal course of business. Management believes that the disposition of outstanding legal actions will not have a material adverse impact on the Partnership's consolidated financial position.
Regulatory Matters - EKLP is subject to regulation by various federal, state, and local government agencies and from time to time receives formal and informal requests for information from such agencies.
At the federal level, the Federal Energy Regulatory Commission ("FERC") regulates certain former activities of EKLP regarding energy commodity transportation and wholesale trading. EKLP was also subject to certain aspects of the jurisdiction of the Commodity Futures Trading Commission ("CFTC").
Cornerstone Matter -On August 18, 2003, Cornerstone Propane Partners, LP filed suit against Entergy-Koch Trading, LP ("EKT"), a subsidiary of EKLP, and other entities on behalf of a putative class of persons who purchased and/or sold natural gas futures and options contracts on the New York Mercantile Exchange ("NYMEX") during the period January 1, 2000 to December 31, 2002. On November 25, 2003, this case was consolidated with several related class actions before the District Court for the Southern District of New York and assigned to Judge Victor Marrero (In Re: Natural Gas Commodity Litigation, 03 CV 6186 (VM)). On January 20, 2004, the plaintiffs filed a consolidated class action complaint which alleges violations of the Commodity Exchange Act including manipulation (Section 9(a)), wash trades (Section 4c), and aiding and abetting violations of the Act (Section 22(a)). The defendants' motion to dismiss this consolidated complaint was denied on September 24, 2004. Plaintiffs' motion for class certification was granted on September 30, 2005. EKT and the Class representatives have agreed on a settlement of the case and this settlement agreement has received preliminary approval from the Court. Until this settlement becomes final, the outcome of this litigation cannot be determined. Consequently, even though it is expected that this litigation will be resolved without any material impact, it is not possible at this time to assess the extent of the impact of this action on EKT.
Northern Illinois Gas Company Matter - On November 12, 2002, the SEC issued a subpoena requesting that Koch Industries, Inc., produce certain documents and information concerning business activities with Nicor, Inc. ("Nicor"). On November 22, 2002, the Partnership submitted to the SEC a limiting letter that, among other things, clarified that the entity that had the business relationship with Nicor was a subsidiary of EKLP. EKLP is cooperating with the SEC and the U.S. Attorney's office in this matter and has produced documents and information in response to the subpoena. The SEC's inquiry regarding Nicor is ongoing, and the outcome or timing of this matter cannot be predicted. Other federal governmental authorities that are also investigating Nicor may be focusing on its business relationship with EKLP.
On May 19, 2004, Nicor filed under seal a Verified Complaint against EKLP in Circuit Court of Cook County, Illinois, Chancery Division. The Complaint sought production of certain records that Nicor claimed were necessary to verify the accuracy of payments it made to EKLP pursuant to certain contracts between them. Nicor further asked for an accounting between the parties. The Complaint did not include a claim for damages. On July 16, 2004, the Circuit Court entered a Protective Order and a Dismissal Order, dismissing the Complaint in part with prejudice and in part without prejudice, while retaining jurisdiction to enforce or modify the Protective Order entered along with the Dismissal Order. On August 3, 2004, the parties, following extensive negations, entered into an Order modifying the terms of the Court's prior Protective Order. As before, however, the case was dismissed, in part without prejudice and with the Court retaining the right to enforce or modify its Protective Order. To date, no enforcement proceedings have been initiated against EKLP.
On August 25, 2004, the CFTC issued an informal request that EKLP produce certain information and preserve records that are related to any asset optimization agreement entered into between EKLP and/or IMD Storage and Transportation Asset Management Company ("IMD") and any third party. In 1998, Koch Energy Trading, Inc. ("KET"), a predecessor of EKLP, acquired a 50% ownership share in IMD. In 2000, KET increased its existing stake in IMD to 100% by acquiring the remaining ownership interest. The assets of KET, including IMD, subsequently became part of EKLP in February 2001. On September 13, 2004, a formal order of investigation was issued. The CFTC clarified the scope of its informal request and requested that EKLP produce information as part of an investigation related to EKLP's and/or IMD's trading activities with Nicor and Public Service Enterprise Group through December 31, 2002. EKLP is cooperating with the CFTC and is providing the requested information and preserving the referenced records. No enforcement proceedings have been initiated against EKLP or any of its affiliates.
Illinois Commerce Commission v. Entergy-Koch Trading, L.P. - On November 22, 2004, the Illinois Commerce Commission ("ICC") filed an Application to Compel Attendance of Witnesses and the Production of Tape Recordings and Documents ("Application") against EKLP in the Circuit Court of Cook County, Illinois. The Application seeks the production of certain tape recordings and documents sought by Nicor as specified in a subpoena issued by the ICC in June 2004 pursuant to Nicor's request in an ICC proceeding to which EKT is not a party. The Application does not seek monetary damages. On February 1, 2005, the Court denied EKLP's motion to dismiss the Application on jurisdictional grounds. EKLP is pursuing an appeal of that ruling. No discovery has occurred in the case. No enforcement proceedings have been initiated against EKLP or any of its affiliates.
City of Tacoma Litigation - On June 7, 2004, the City of Tacoma, Department of Public Utilities, Light Division ("Tacoma Power") filed suit against Koch Energy Trading, Inc. (a predecessor of EKT) and 55 other entities, entitled City of Tacoma, Department of Public Utilities, Light Division v. American Electric Power Service Corporation, et al., No. C04-5325 RBL, in the United States District Court for the Western District of Washington. The suit claims violations of the Sherman Antitrust Act during the period of approximately May 2000 through the end of 2001 in relation to the trading of West Coast power.
On August 20, 2004 this case was transferred to the Southern District of California, assigned to Judge Robert H. Whaley and consolidated or coordinated with the other cases involved in In re California Wholesale Electricity Antitrust Litigation, MDL No. 1405. The defendants filed a joint motion to dismiss the complaint on December 9, 2004, which EKT joined. On February 11, 2005, the Court granted the Defendants' joint motion to dismiss and EKT's joinder in that motion, and dismissed the case.
Plaintiffs appealed to the Ninth Circuit and defendants filed a joint brief in opposition and filed a motion requesting summary affirmance. On November 3, 2005, defendants' motion for summary affirmance was denied. Oral argument on the appeal has not yet been set. Considering that the appeal is still pending, the outcome of this litigation cannot be determined at this time. Consequently, it is not possible to assess the impact, if any, of this action on EKT. EKT intends to continue to vigorously defend this action.
Other - In addition, EKLP has received several formal and informal requests for information from various regulatory and governmental agencies in connection with the Partnership's former gas and power businesses. At this point, the Partnership does not believe that these inquiries will result in a material impact on the Partnership.
Non-Cancelable Operating Obligations
Operating Leases - EKLP has a noncancelable operating lease commitment extending to the year 2011. Total operating lease expense for the years ended December 31, 2005 was $124 thousand net of short term sublease rental income of $70 thousand. EKLP's remaining minimum future commitment related to this lease as of December 31, 2005, is as follows (in thousands):
2006 | 180 |
2007 | 180 |
2008 | 180 |
2009 | 180 |
2010 | 180 |
Thereafter | 15 |
Total | $ 915 |
Consolidated Financial Statements
Years ended December 31, 2004, 2003, and 2002
Report of Independent Auditors
The Audit Committee of the Board of Directors of EKLP, LLC, and
Partners of Entergy - Koch, LP
We have audited the accompanying consolidated balance sheets of Entergy - Koch,
LP (the "Partnership"), as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Entergy
- - Koch, LP, at December 31, 2004 and 2003, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States.
As further discussed in Note 3 to the consolidated financial statements, in 2003
the Partnership changed its method of accounting for inventory held for trading
purposes and energy trading contracts not qualifying as derivatives.
/s/ Ernst & Young LLP
Houston, Texas
March 1, 2005
Entergy - Koch, LP
Consolidated Balance Sheets
(In Thousands)
December 31 |
||
2004 |
2003 |
|
Assets | ||
Current assets: | ||
Cash and cash equivalents | $ 240,052 | $ 277,964 |
Margin and collateral deposits | 4,485 | 186,624 |
Accounts receivable: | ||
Trade (less allowance of $4,526 and $12,307, respectively) | 44,655 | 839,995 |
Affiliates | 1,201 | 37,305 |
Receivable from Partners | - | 4,500 |
Natural gas inventory | - | 239,150 |
Assets from trading activities | 6,617 | 680,643 |
Other current assets | 4,365 | 192,011 |
Pipeline assets held for sale | - | 1,019,873 |
Total current assets | 301,375 | 3,478,065 |
Noncurrent assets: | ||
Restricted cash - escrow | 200,300 | - |
Property, plant, and equipment, net | - | 20,787 |
Assets from trading activities | - | 192,316 |
Other noncurrent assets | - | 26,474 |
Total noncurrent assets | 200,300 | 239,577 |
Total assets | $ 501,675 | $ 3,717,642 |
December 31 |
|||
2004 |
2003 |
||
Liabilities and Partners' capital | |||
Current liabilities: | |||
Accounts payable: | |||
Trade | $ 38,734 | $ 807,168 | |
Affiliates | - | 7,478 | |
Collateral held on deposit | 3,991 | 114,347 | |
Liabilities from trading activities | 6,617 | 574,870 | |
Accrued liabilities | 67,046 | 87,228 | |
Notes payable - credit facilities | - | 32,337 | |
Other current liabilities | 11 | 6,485 | |
Pipeline liabilities held for sale | - | 97,569 | |
Total current liabilities | 116,399 | 1,727,482 | |
Noncurrent liabilities: | |||
Senior notes (net of discount) | - | 501,721 | |
Liabilities from trading activities | - | 291,542 | |
Deferred gain on sale of trading assets | 200,300 | - | |
Other noncurrent liabilities | 15,535 | 13,651 | |
Total noncurrent liabilities | 215,835 | 806,914 | |
Commitments and contingencies (Note 10) | |||
Partners' capital: | |||
General Partner
(including accumulated other comprehensive income (loss) of $-0- and $(21), respectively) |
1,694 | 11,832 | |
Limited Partners
(including accumulated other comprehensive income (loss) of $-0- and $(2,030), respectively) |
167,747 | 1,171,414 | |
Total Partners' capital | 169,441 | 1,183,246 | |
Total liabilities and Partners' capital | $ 501,675 | $ 3,717,642 | |
Entergy - Koch, LP
Consolidated Statements of Income
(In Thousands)
Year ended December 31 |
||||
2004 |
2003 |
2002 |
||
Net (loss) gain from trading activities | $ (108,302) | $ 339,362 | $ 259,472 | |
Depreciation and amortization | 6,744 | 11,790 | 11,233 | |
General and administrative | 107,997 | 117,805 | 122,726 | |
Operating (loss) income | (223,043) | 209,767 | 125,513 | |
Other income and expense: | ||||
Gain on sale of trading assets | 869,114 | - | - | |
Interest income | 8,143 | 6,020 | 1,439 | |
Interest expense | (22,842) | (28,124) | (24,317) | |
Loss on extinguishment of debt | (60,228) | - | - | |
Other (expense) income | (5,120) | 171 | 19,149 | |
Total other income (expense) | 789,067 | (21,933) | (3,729) | |
Income from continuing
operations before income tax expense and cumulative effect of change in accounting principle |
566,024 | 187,834 | 121,784 | |
Income tax expense | 15,761 | 4,494 | 3,684 | |
Income from continuing
operations before cumulative effect of change in accounting principle |
550,263 | 183,340 | 118,100 | |
Discontinued operations: | ||||
Income (loss) from discontinued operations | 43,246 | (17,941) | 31,160 | |
Gain on sale of discontinued operations | 157,885 | - | - | |
Income before cumulative
effect of change in accounting principle |
751,394 | 165,399 | 149,260 | |
Cumulative effect of change in
accounting principle (net of tax benefit of $4,477 in 2003) |
- | 14,711 | - | |
Net income | $ 751,394 | $ 180,110 | $ 149,260 |
See accompanying notes.
Entergy - Koch, LP
Consolidated Statements of Changes in
Partners' Capital
(In Thousands)
General Partner |
Limited Partners |
Total |
|
Balance at December 31, 2001 |
$ 10,248 |
$ 1,014,609 |
$ 1,024,857 |
Capital contributions |
328 |
32,503 |
32,831 |
Net income |
1,493 |
147,767 |
149,260 |
Other comprehensive income: |
|
|
|
Foreign currency translation | 37 |
3,606 |
3,643 |
Net cash flow hedge gain | 26 |
2,543 |
2,569 |
Net cash flow hedge gain recognized in net income | (40) |
(3,955) |
(3,995) |
Total other comprehensive income | 23 |
2,194 |
2,217 |
Total comprehensive income | 1,516 |
149,961 |
151,477 |
Balance at December 31, 2002 | 12,092 |
1,197,073 |
1,209,165 |
Capital distributions | (2,000) |
(198,000) |
(200,000) |
Net income | 1,801 |
178,309 |
180,110 |
Other comprehensive income: |
|
|
|
Foreign currency translation |
69 |
6,824 |
6,893 |
Net cash flow hedge loss |
(133) |
(13,114) |
(13,247) |
Net cash flow hedge loss recognized in net income |
3 |
322 |
325 |
Total other comprehensive loss |
(61) |
(5,968) |
(6,029) |
Total comprehensive income |
1,740 |
172,341 |
174,081 |
Balance at December 31, 2003 |
11,832 |
1,171,414 |
1,183,246 |
Capital contributions |
- |
72,750 |
72,750 |
Capital distributions |
(17,673) |
(1,822,327) |
(1,840,000) |
Net income |
7,514 |
743,880 |
751,394 |
Other comprehensive income: |
|
|
|
Foreign currency translation |
(109) |
(10,762) |
(10,871) |
Net cash flow hedge loss |
(188) |
(18,685) |
(18,873) |
Net cash flow hedge loss recognized in net income |
318 |
31,477 |
31,795 |
Total other comprehensive income |
21 |
2,030 |
2,051 |
Total comprehensive income |
7,535 |
745,910 |
753,445 |
Balance at December 31, 2004 |
$ 1,694 |
$ 167,747 |
$ 169,441 |
Entergy - Koch, LP
Consolidated Statements of Cash Flows
(In Thousands)
Year ended December 31 |
|||
2004 |
2003 |
2002 |
|
Cash flows from operating activities - continuing operations and discontinued operations | |||
Net income | $ 751,394 | $ 180,110 | $ 149,260 |
Adjustments to reconcile net
income to net cash flows provided by (used in) operating activities: |
|||
Gain on sales of trading assets and discontinued operations | (1,026,999) | - | - |
Loss on extinguishment of debt | 60,228 | - | - |
Provision for loss on accounts receivable | 1,508 | 1,182 | 11,507 |
Depreciation and amortization | 30,718 | 42,851 | 42,087 |
Cumulative effect of change in accounting principle | - | (15,245) | - |
Change in net assets from trading activities | 410,282 | 87,801 | 15,844 |
Gain on sale of assets | - | - | (775) |
Net changes in working capital | (207,091) | 132,656 | (373,657) |
Change in net other noncurrent assets and liabilities | 19,988 | 1,273 | 13,426 |
Net cash flows provided by (used in) operating activities | 40,028 | 430,628 | (142,308) |
Cash flows from investing
activities - continuing operations and discontinued operations |
|||
Capital expenditures | (45,999) | (88,277) | (50,133) |
Proceed from sale of asset | - | - | 9,897 |
Net proceeds from sale of discontinued operations | 1,116,828 | - | - |
Net proceeds from sales of
trading assets (exclusive of restricted cash of $200,000) |
1,205,249 | - | - |
Net cash flows provided by (used in) investing activities | 2,276,078 | (88,277) | (40,236) |
Cash flows from financing
- continuing operations and discontinued operations |
|||
Net (repayment) borrowing - credit facilities notes payable | (32,337) | (215,663) | 88,000 |
Net (repayment) proceeds - senior notes | (555,674) | 199,910 | - |
Capital contribution | 72,750 | 32,831 | - |
Capital distributions | (1,840,000) | (200,000) | - |
Net cash flows (used in) provided by financing activities | (2,355,261) | (182,922) | 88,000 |
Effect of exchange rate changes on cash and cash equivalents | 1,243 | 2,575 | 3,486 |
Net change in cash and cash equivalents | (37,912) | 162,004 | (91,058) |
Cash and cash equivalents, beginning of year | 277,964 | 115,960 | 207,018 |
Cash and cash equivalents, end of year | $ 240,052 | $ 277,964 | $ 115,960 |
Cash paid for income taxes (in millions) | $ 15.7 | $ 6.9 | $ 6.4 |
Cash paid for interest (in millions) | $ 34.1 | $ 27.8 | $ 25.9 |
See accompanying notes.
Entergy - Koch, LP
December 31, 2004
1. Organization and Nature of Operations
Entergy - Koch, LP ("EKLP" or the "Partnership"), is a limited partnership indirectly owned by subsidiaries of Entergy Corporation ("Entergy") and Koch Industries, Inc. ("Koch") (collectively, the "Partners"). Subsidiaries of Entergy and Koch own 99% of the Partnership through limited partner interests, and the remaining 1% of the Partnership is owned by the general partner, EKLP, LLC, a company owned 50% by EK Holding III, LLC (an Entergy subsidiary), and 50% by Koch Energy, Inc. (a Koch subsidiary). EKLP, LLC, is managed by a board of directors, with each partner having equal representation.
Pursuant to the Agreement of Limited Partnership, dated January 31, 2001 (the "Partnership Agreement"), general distributions are equally shared by the Partners; however, the Partners disproportionately share in certain profits and special allocations, which occur periodically and would occur upon liquidation. The Partnership Agreement also requires that distributions of cash be made quarterly, if EKLP, LLC, determines there is excess cash, based on EKLP management's recommendation.
EKLP was formed to combine certain natural gas and power trading contracts and assets of Entergy with the natural gas pipeline business and the natural gas, power, and weather trading business of Koch. The accompanying consolidated financial statements reflect the transactions of the Partnership subsequent to its inception. The Partnership operated these contributed businesses, contracts, and assets primarily through four wholly owned subsidiaries: Gulf South Pipeline Company, LP ("Gulf South"), Entergy - Koch Trading, LP ("EKT US"), Entergy - Koch Trading Canada, ULC ("EKT CAN"), and Entergy - Koch Trading, Ltd. ("EKT Europe"). On September 2, 2004, Entergy announced that EKLP had signed a definitive agreement to sell EKT Europe, EKT CAN, and substantially all of the assets of EKT US ("Trading Assets") to Merrill Lynch Commodities, Inc. ("MLCI"), and was conducting a competitive process to sell Gulf South.
On November 1, 2004, EKLP sold Trading Assets to MLCI for a purchase price of $800 million plus the fair value of all trading assets sold. The agreement called for EKLP to establish an escrow account for $200 million that EKLP is entitled to, two years from closing, contingent on certain events that may preclude former EKLP executives from being able to continue their services with MLCI. The $200 million contingent gain has been deferred and is classified as restricted cash - escrow in noncurrent assets, and is recorded as a noncurrent liability on the consolidated balance sheets. Interest earned on the restricted cash accrues to the benefit of EKLP, pending resolution of the contingency. Such interest amounts to $0.3 million as of December 31, 2004.
Due to the nature of the assets sold, mainly contracts with third parties, and because EKLP will have to legally continue to maintain and manage all the rights and obligations for certain contracts that are not assigned by the third party to MLCI, the sale of the Trading Assets do not qualify for discontinued operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). As such, the gain on the sale of the Trading Assets is included in net income from continuing operations in the consolidated statements of income. As part of the sales agreement, EKLP entered into a total return swap whereby MLCI assumes all the benefits and detriments associated with any of EKLP's contracts that were included in the sales agreement and have not been assigned to MLCI. See Note 7, "Concentrations of Credit Risk."
On December 29, 2004, EKLP sold Gulf South to TGT Pipeline, LLC. In accordance with SFAS No. 144, Gulf South's assets, liabilities, and results of operations have been reclassified to discontinued operations in the consolidated balance sheets and consolidated statements of income for all periods presented. See Note 8, "Discontinued Operations."
EKLP's future operations will consist of winding down the affairs of the Partnership. The proceeds from the combined sales were used to retire all of EKLP's senior notes and other credit facilities. Remaining proceeds, in excess of future working capital needs and minimum contractual capitalization requirements, as determined by EKLP, were distributed to the Partners.
2. Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the accounts of all of the Partnership's wholly owned subsidiaries after the elimination of significant intercompany transactions and balances. Investments in entities that are not controlled by the Partnership are accounted for using either the cost or equity method, as appropriate. These investments are regularly reviewed for impairment and propriety of current accounting treatment.
Cash and Cash Equivalents - Cash and cash equivalents consist primarily of cash on deposit, certificates of deposit, and money market accounts with original maturities of three months or less. All highly liquid investments with original maturities of three months or less are classified as cash and cash equivalents.
Margin and Collateral Deposits - Margin and collateral deposits consist primarily of cash that the Partnership has on deposit with counterparties for margin or collateral requirements related to trading futures, swap, and option contracts. Pursuant to the Partnership's contracts with each counterparty, the margin or collateral on deposit will vary based on changes in market prices, the Partnership's credit rating, and various other factors. As further discussed in Note 7, "Concentrations of Credit Risk," the Partnership also requires collateral from its counterparties based on similar criteria. Amounts from financial instruments received as collateral from counterparties are recorded as "collateral held on deposit."
Accounts Receivable-Trade - Accounts receivable-trade are stated at the historical carrying amount net of write-offs and allowance for doubtful accounts receivable, and represent claims against third parties that will be settled in cash. An allowance for doubtful accounts is established when needed based on factors including historical experience with the particular counterparty, economic trends and conditions, the age of the underlying receivable, and the Partnership's ability to exercise the right of offset. Interest receivable on delinquent accounts receivable is included in the accounts receivable-trade balance and recognized as interest income when contractually permissible and collectibility is reasonably assured. Past-due accounts receivable-trade are written off when either internal collection efforts have been unsuccessful or when a settlement is reached for an amount that is less than the outstanding historical balance.
Natural Gas Inventory - Inventory is comprised of natural gas held for resale. As further discussed in Note 3, "Changes in Accounting Principles and New Accounting Pronouncements," the Partnership adopted Emerging Issues Task Force ("EITF") Issue No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities ("EITF No. 02-3"). As such, inventory as of December 31, 2003, is recorded at the lower of weighted-average cost or market.
Included in other current assets as of December 31, 2003, are amounts related to natural gas volumes held in third-party facilities and for which title transferred to such third parties but to which the Partnership had rights in the future. Such amounts are recorded at the lower of weighted-average cost or market based on the notional volumes to which the Partnership had rights. The Partnership held title to other natural gas volumes to which third parties had the rights under similar arrangements. The amounts related to these transactions are recorded in other current liabilities at the higher of market or weighted-average cost.
Trading and Risk Management Activities - Trading Services - EKLP offered risk management services to the natural gas, power, and weather markets, and optimization services related to the natural gas storage and transportation assets of its customers. These services were provided through a variety of financial instruments, including forward contracts involving cash settlement or physical delivery of natural gas or power; swap contracts requiring payment to (or receipts from) counterparties based on the difference between two prices for (or related to) natural gas, power, or weather; and option contracts requiring payment to (or receipts from) counterparties based on the difference between the option's strike and the related market price for natural gas, power, or weather.
As required by EITF No. 02-3, the mark-to-market method is used to account for all derivative trading activities and the accrual method of accounting is used to account for storage, transportation, and asset optimization contracts not qualifying as derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS No. 133").
As required by EITF Issue No. 99-2, Accounting for Weather Derivatives ("EITF No. 99-2"), the Partnership uses the mark-to-market method to account for all trading-related weather contracts.
Under the mark-to-market method, derivative contracts are recorded at quoted or estimated market value, with resulting unrealized gains and losses recorded as "Assets from trading activities" and "Liabilities from trading activities," respectively, on the consolidated balance sheets according to their term to maturity. Current period changes in the assets and liabilities from trading activities are recognized as net gains or losses in "Net gain (loss) from trading activities" on the consolidated statements of income. Changes in the assets and liabilities from trading activities result primarily from changes in the valuation of the portfolio of contracts, maturity and settlement of contracts, and newly originated transactions. Terms regarding cash settlement of the contracts vary with respect to the actual timing of cash receipts and payments. Accounts receivable, accounts payable, and margin and collateral deposits include settlement amounts for financial derivatives for which the contractual settlement price has been published at the end of the accounting period. As a result, at December 31, 2003, accounts receivable and accounts payable included $88.2 million and $64 million, respectively, of January 2004 settled financial forward contracts valued using the published January 2004 futures price. Margin and collateral deposits include $(1.9) million of January 2004 settled futures at December 31, 2003.
The market prices and models used to value the derivatives reflect management's best estimate considering various factors, including closing exchange and over-the-counter quotations, time value, and volatility underlying the contracts. The values are adjusted to reflect the potential impact of liquidating EKLP's positions in an orderly manner over a reasonable time period under present market conditions and to reflect other types of risks, including model risk and credit risk. When quoted market prices are not available, EKLP utilizes other valuation techniques to estimate market value. The use of these techniques requires estimations with respect to future prices, volatility, liquidity, and other variables. Changes in market prices and the estimations used directly affect the estimated market value of these transactions. Accordingly, it is reasonably possible that such estimates could change in the near term.
Beginning January 1, 2003, EKT US utilized futures contracts to mitigate the variability in cash flows of anticipated future natural gas purchases and sales. EKT US designated and accounted for these derivatives as cash flow hedges in accordance with SFAS No. 133. The changes in the fair value of the hedge contracts were expected to, and did, have a high correlation to changes in the anticipated natural gas purchases and sales and, therefore, qualified as cash flow hedges under SFAS No. 133. In addition, if the hedge contracts ceased to have high correlation, or if the forecasted purchase or sale were deemed no longer probable to occur, hedge accounting was terminated and the associated change in fair value of the derivatives was recognized in the related period of change in "Net (loss) gain from trading activities" on the consolidated statements of income.
The fair value of these derivatives is reported in the consolidated balance sheets in "Assets and liabilities from trading activities." As of December 31, 2003, EKT US included a net deferred loss on these cash flow hedges in "Accumulated other comprehensive income" of approximately $11.8 million. For the years ended December 31, 2004 and 2003, the ineffective portion of these hedges recorded in "Net (loss) gain from trading activities" was approximately $5 million and $6 million, respectively. Upon the sale of the Trading Assets, EKLP reclassified approximately $55 million of losses deferred in other comprehensive income to "Net gain from trading activities" because the forecasted purchase or sale that was being hedged became probable of not occurring by the end of the originally specified time period, as documented at the inception of the hedging relationship. EKLP did not have any open cash flow hedges as of December 31, 2004.
EKLP's asset optimization contracts relate to the natural gas storage and transportation assets of the related counterparties. Revenues, costs, and profit-sharing obligations associated with these asset optimization contracts are recognized based on the terms of the contract as such revenues are earned and costs are incurred, and when profit-sharing obligations arise. In addition, EKLP entered into derivative contracts to manage market risk associated with its asset optimization contracts. These derivative contracts were not designated as hedges and continued to be recorded at fair value.
Trading and Risk Management Activities - Treasury - The Partnership entered into an interest rate swap agreement for interest rate risk exposures, which was designated as a fair value hedge pursuant to SFAS No. 133. The interest rate swap agreement utilized by the Partnership effectively modified the Partnership's exposure to interest risk by converting the Partnership's $200 million in fixed rate debt issued August 21, 2003, to a floating rate. This agreement involved the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount.
Hedge effectiveness is assessed as the change in the fair value of the hedging instrument relative to the change in the fair value of the related debt. During the year ended December 31, 2003, the Partnership recognized an immaterial net gain, included as a component of interest income, related to the ineffective portion of its fair value hedge of interest rate risk exposure. The effect of the fair value hedge for the year ended December 31, 2003, was to increase the carrying value of the associated debt by $2.5 million. A corresponding asset for approximately the same amount is recorded in "Other assets." The Partnership terminated this hedge in August 2004 upon liquidating the interest rate swap.
Additionally, the Partnership entered into forward foreign currency swaps associated with certain intercompany debt balances carried by the domestic entity, which are denominated in British pounds. The swaps were used to counteract the effects of changes in foreign currency exchange rates. For the years ended December 31, 2004 and 2003, the foreign currency swaps resulted in a loss of $9 million and $15.9 million, respectively.
Property, Plant, and Equipment - Property, plant, and equipment includes computer hardware and software and is depreciated using the straight-line method based on average useful lives ranging from three to five years.
Assets Held for Sale - The Partnership classifies assets as held for sale when the assets meet the held for sale criteria of SFAS No. 144. This statement established the criteria to determine when a qualified group of long-lived assets and liabilities should be classified as held for sale. Among other indicators, to classify long-lived assets as held for sale, an entity must be actively marketing the assets and the sale of the asset group must be probable.
Intangible Assets - EKLP's intangible assets related to the weather trading business and represented the logic utilized in the proprietary weather derivative valuation models, analytics used to translate weather information into trading strategies, and the proprietary data infrastructure that facilitates creation of structured weather derivative products. The logic and valuation models were sold to MLCI as part of sale of the Trading Assets.
Income Taxes - The Partnership's consolidated financial statements reflect no provision for United States federal and state income taxes since such taxes, if any, are the liabilities of the Partners. Foreign income taxes are provided for the Partnership's subsidiaries, which are subject to taxation in foreign jurisdictions. All operating foreign subsidiaries were sold as part of the sale of the Trading Assets. At December 31, 2004, there were no deferred tax assets or liabilities. Such deferred tax assets and liabilities were not significant at December 31, 2003.
Net (loss) Gain From Trading Activities - The accompanying consolidated financial statements present revenues, costs, and realized and unrealized gains and losses from derivatives for trading services, including physical sales and purchases of natural gas and power, on a net basis in "Net (loss) gain from trading activities" in the consolidated statements of income. Revenues from sales of physical natural gas and power are recognized in the month of delivery. The associated costs, including transportation and transmission charges, are recognized concurrent with the revenue.
Foreign Currency - Management determined the functional currency of EKT Europe to be the British pound. As such, the assets and liabilities of EKT Europe were translated at the exchange rate at December 31, 2003. Revenues and expenses for EKT Europe were translated at a weighted-average exchange rate for each reporting period presented in the accompanying consolidated statements of income. Foreign currency translation adjustments are reported in Partners' capital (as a component of other comprehensive income). Individually significant transactions are translated at the exchange rate on the date of the transaction. Foreign exchange transaction gains and losses are recognized as "Other income (expense)" on the consolidated statements of income for the period. For the years ended December 31, 2004, 2003, and 2002, foreign exchange gains of approximately $7.0 million, $14.1 million, and $7.1 million, respectively, were included in "Other income (expense)." All operating foreign subsidiaries were sold as part of the sale of the Trading Assets. Approximately $12 million of foreign exchange gain was reclassified from "accumulated other comprehensive income" to gain on sale of trading assets in the consolidated statements of income.
Use of Estimates - The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make various assumptions and estimates that affect amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. See related discussion in "Trading and Risk Management Activities."
Reclassifications - Certain reclassifications have been made to the presentation of balances from prior periods to conform with the current-period presentation. These reclassifications have no net effect on previously reported results of operations.
3. Changes in Accounting Principles and New Accounting Pronouncements
Changes in Accounting Principles
EITF No. 02-3 - In October 2002, the EITF reached consensus in EITF No. 02-3 to rescind EITF Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities ("EITF No. 98-10"), EITF Issue No. 00-17, Measuring the Fair Value of Energy-Related Contracts in Applying No. 98-10, and Financial Accounting Standards Board ("FASB") Staff Announcement Topic D-105, Accounting in Consolidation for Energy Trading Contracts, between Affiliated Entities When Activities of One but Not Both Affiliates Are within the Scope of EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" ("Topic No. D-105"). According to the consensus, "other energy contracts" such as storage and transportation contracts, not qualifying as derivatives pursuant to SFAS No. 133, executed prior to October 26, 2002, shall no longer be marked-to-market effective January 1, 2003. The accrual basis of accounting is required for contracts executed subsequent to October 25, 2002. In addition, for fiscal years beginning after December 15, 2002, gains and losses on all derivative instruments should be shown net in the income statement, whether or not settled physically, if the derivatives are held for trading purposes. EITF No. 02-3 also clarified that with the rescission of EITF No. 98-10, it would no longer be an acceptable industry practice to account for inventory held for trading purposes at fair value when fair value exceeds cost, except as provided by higher level accounting principles generally accepted in the United States.
The Partnership prospectively adopted the provisions of EITF No. 02-3 relating to inventory held for trading purposes and energy trading contracts not qualifying as derivatives and executed subsequent to October 25, 2002. The Partnership adopted EITF No. 02-3 in January 1, 2003, for its nonderivative energy trading contracts executed prior to October 26, 2002, and reported an increase to net income of $14.7 million as a cumulative effect of a change in accounting principle, net of tax. As a result of the adoption of EITF No. 02-3, the Partnership no longer recognizes energy trading contracts under mark-to-market accounting unless these contracts meet the definition of a derivative in accordance with SFAS No. 133 or the contract is a weather derivative. The Partnership has retained net presentation of all of its trading activities in the consolidated statements of income.
In November 2002, EITF No. 02-3 was revised to state that an unrealized gain or loss at inception of a derivative instrument should not be recognized unless the fair value of that instrument is obtained from a quoted market price in an active market or is otherwise evidenced by comparison to other observable current market transactions or based on a valuation technique incorporating observable market data. Adoption by the Partnership of this November revision to EITF No. 02-3 was applied by the Partnership prospectively and did not have a material impact on the Partnership's consolidated financial position or results of operations.
SFAS No. 149 - In April 2003, SFAS No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS
No. 149"), was issued. SFAS No.149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities under SFAS
No. 133. SFAS No. 149 clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative as discussed in
SFAS No. 133. In addition, it clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 amends certain other existing pronouncements. These changes will result
in a more consistent reporting of contracts that are derivatives in their
entirety or that contain embedded derivatives that warrant separate accounting.
SFAS No. 149 was effective for contracts entered into or modified after June 30,
2003, except as stated below, and for hedging relationships designated after
June 30, 2003. The guidance is to be applied prospectively. The provisions of
SFAS No. 149 that relate to SFAS No. 133, Implementation Issues, that
have been effective for periods that began prior to June 15, 2003, continue to
be applied in accordance with their respective effective dates. The adoption of
SFAS No. 149 did not have an impact on the consolidated financial statements of
the Partnership.
4. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income are as follows:
December 31, 2004 |
December 31, 2003 |
December 31, 2002 |
|||||||
General Partner |
Limited Partners |
Total |
General Partner |
Limited Partners |
Total |
General Partner |
Limited Partners |
Total |
|
(In Thousands) |
|||||||||
Accumulated other comprehensive income: | |||||||||
Accumulated foreign currency translation | $ - | $ - | $ - | $ 109 | $ 10,762 | $ 10,871 | $ 40 | $ 3,938 | $ 3,978 |
Accumulated net cash flow hedge (loss) gain |
- |
- |
- |
(51) |
(5,013) |
(5,064) |
82 |
8,101 |
8,183 |
Accumulated net cash flow hedge gain recognized in net income |
- |
- |
- |
(79) |
(7,779) |
(7,858) |
(82) |
(8,101) |
(8,183) |
$ - |
$ - |
$ - |
$ (21) |
$ (2,030) |
$ (2,051) |
$ 40 |
$ 3,938 |
$ 3,978 |
5. Supplemental Cash Flow Information
Changes in the components of working capital are as follows:
Year ended December 31 |
|||
2004 |
2003 |
2002 |
|
(In Thousands) |
|||
Changes in operating assets and liabilities: | |||
Decrease (increase) in accounts receivable, trade | $ 125,207 | $ (91,225) | $ (262,697) |
Increase in accounts receivable, affiliate | (3,965) | (7,238) | (8,387) |
Decrease in receivable from partners | 6,755 | 891 | 3,731 |
Change in net transportation and exchange receivables and payables | 3,456 | (5,111) | (1,461) |
Change in net margin and collateral | (237,652) | (76,404) | 4,056 |
(Increase) decrease in natural gas inventory | (238,819) | 154,641 | (168,327) |
(Decrease) increase in accounts payable, trade | (65,146) | 128,680 | 231,953 |
Increase (decrease) in accounts payable, affiliates | 5,596 | (24,300) | 1,392 |
(Decrease) increase in accrued liabilities | (74,139) | 42,934 | (20,583) |
Change in other current assets and liabilities, net | 271,616 | 9,788 | (153,334) |
Total | $ (207,091) | $ 132,656 | $ (373,657) |
6. Fair Value of Financial Instruments
At December 31, 2004 and 2003, the carrying amounts of certain financial instruments held by the Partnership, including cash equivalents, accounts receivable, accounts payable, and notes payable are representative of fair value because of the short-term maturity of these instruments. In addition to the financial instruments listed below, the Partnership held financial instruments for trading and risk management activities, as well as debt instruments, as disclosed.
The fair value of all of the Partnership's derivative financial instruments and other trading contracts is the estimated amount at which management believes the instruments could be liquidated over a reasonable period of time, based on quoted market prices, current market conditions, or other estimates obtained from third-party brokers or dealers. See Note 2, "Significant Accounting Policies," under "Trading and Risk Management Activities" for additional information.
The fair value of the Partnership's derivatives, financial instruments, and other trading contracts at December 31, 2004 and 2003, is summarized in the following tables:
December 31, 2004 |
||||
Estimated Fair Value |
Carrying Amount |
|||
Assets |
Liabilities |
Assets |
Liabilities |
|
(In Thousands) |
||||
Trading | ||||
Natural gas | $ 6,557 | $ 218 | $ 6,557 | $ 218 |
Power | 30 | - | 30 | - |
Weather | 30 | 7 | 30 | 7 |
Other(1) | - | 6,392 | - | 6,392 |
$ 6,617 | $ 6,617 | $ 6,617 | $ 6,617 |
(1) Represents the fair value of the total
return swap with MLCI. See Note 7, "Concentrations of Credit Risk."
December 31, 2003 |
||||
Estimated Fair Value |
Carrying Amount |
|||
Assets |
Liabilities |
Assets |
Liabilities |
|
(In Thousands) |
||||
Trading(1) | ||||
Natural gas | $ 499,610 | $ 541,699 | $ 499,610 | $ 541,699 |
Power | 348,267 | 296,814 | 348,267 | 296,814 |
Weather | 20,069 | 21,177 | 20,069 | 21,177 |
Other energy-related commodities | 5,013 | 6,722 | 5,013 | 6,722 |
$ 872,959 | $ 866,412 | $ 872,959 | $ 866,412 | |
Non-Trading(2) | ||||
Interest rate swap | $ 2,058 | $ - | $ 2,058 | $ - |
Foreign currency swap | - | 1,497 | - | 1,497 |
$ 2,058 | $ 1,497 | $ 2,058 | $ 1,497 | |
Debt instruments | ||||
Senior notes(3) | $ - | $ 546,252 | $ - | $ 501,721 |
(1)
Represents the fair value of all derivatives of trading services, including natural gas derivatives for cash flow hedges accounted for in accordance with SFAS No. 133. The carrying amount of trading services derivatives is included in the consolidated balance sheet as "Assets and liabilities from trading activities."(2)
The carrying amount is included in the consolidated balance sheet in "Other current assets" and "Other current liabilities."(3)
The estimated fair value of the senior notes has been determined by the Partnership using available market information and selected valuation methodologies. Considerable judgment is required in interpreting market data to develop the fair value estimate. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value.7. Concentrations of Credit Risk
EKLP managed its own portfolio through its Trading Assets using a variety of financial instruments, which include forwards, futures, swaps, options, storage contracts, and transportation contracts. This portfolio was sold in its entirety to MLCI as part of the sale of the Trading Assets. As part of the sale, EKLP entered into a total return swap with MLCI where MLCI assumes all the benefits and detriments associated with any of EKLP contracts that were included in the sales agreement and have not been assigned to MLCI. Assets and liabilities from trading activities that have not been assigned at December 31, 2004, are $6.6 million and $0.2 million, respectively. To record the total return swap, $6.4 million due to MLCI has been recorded in liabilities from trading activities. Trade receivables and payables relating to the contracts that have not been assigned to MLCI at December 31, 2004, but that are related to the total return swap are $37.8 million and $1.1 million, respectively. To record the total return swap, a net $36.7 million payable due to MLCI has been recorded in trade payables.
Inherent in trading and risk management activities are certain business risks, including market risk and credit risk. Market risk is the risk that the value of the contracts and derivative financial instruments will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or an agreement. The total return swap transferred all market risk and credit risk to MLCI. Thus, at December 31, 2004, EKLP is only exposed to credit risk with MLCI. During January 2005 contracts, related to approximately 70% of the fair value of the total return swap at December 31, 2004, were assigned to MLCI. Based on MLCI's creditworthiness, the Partnership does not anticipate a material adverse effect on its consolidated financial position as a result of counterparty nonperformance.
The notional volumes of the Partnership's realized physical activity included in "Net gain from trading activities" are set forth below. These notional volumes represent the gross transaction volumes for trading contracts before the sale of the Trading Assets that were physically settled and are a measure of the Partnership's exposure to market or credit risk.
Year ended December 31 |
|||
2004 |
2003 |
||
(In Thousands) |
|||
Trading | |||
Power (in MWh) | 323,421 | 445,979 | |
Gas (in MMBtu) | 1,713,861 | 2,347,045 |
Financial instruments, which subject the Partnership to credit risk, consist principally of cash equivalents and trade receivables. In accordance with the Partnership's investment policy, cash equivalents are invested such that credit exposure to any one financial institution is limited.
Trade receivables are predominantly with energy, utility, and other trading companies in the United States. For the years ended December 31, 2004, 2003, and 2002, no single counterparty contributed in excess of 10% of "Net gain from trading activities" on the consolidated statements of income.
The counterparties associated with "Assets from trading activities" at December 31, 2003, are summarized in the following tables:
December 31, 2003 |
||
Investment Grade(1) |
Total |
|
(In Thousands) |
||
Gas and electric utilities | $ 188,105 | $ 211,220 |
Energy marketers | 117,732 | 274,712 |
Financial institutions | 285,879 | 300,805 |
Oil and gas producers | 15,642 | 66,766 |
Industrials | 10,570 | 11,746 |
Other | 12,245 | 12,534 |
Total | $ 630,173 | 877,783 |
Credit valuation adjustments | (4,824) | |
Trading exposure(2) | 872,959 | |
Collateral | (379,735) (3) | |
Assets from trading activities, net of collateral | $ 493,224 |
(1)
(2)
Trading exposure reflects netting between current and noncurrent assets and liabilities from trading activities under master netting agreements, as applicable. Three customers' exposure at December 31, 2003, comprised greater than 5% of assets from trading activities, of which two are included above as "Investment Grade."(3)
Includes collateral held on deposit and standby letters of credit. An additional $73.5 million of collateral is being applied against estimated accounts receivable.8. Discontinued Operations
On December 29, 2004, EKLP sold its pipeline business for $1.136 billion plus the net working capital as of the closing date ("Base Purchase Price"). Accordingly, the assets, liabilities, and results of operations of the pipeline business have been reported as discontinued operations for all periods presented. Operating revenues for Gulf South classified as discontinued operations in the consolidated statements of income for the years ended December 31, 2004, 2003, and 2002, were $198 million, $177 million, and $161 million, respectively.
The Partnership reclassified $0.5 million from the 2003 cumulative effect of a change in accounting principle related to Gulf South's adoption of SFAS No. 143, Accounting for Asset Retirement Obligations, to loss from discontinued operations.
A summary of assets and liabilities related to Gulf South reclassified as assets and liabilities held for sale on the consolidated balance sheets as of December 31, 2003, is as follows:
December 31 |
|
2003 |
|
(In Thousands) |
|
ASSETS |
|
Accounts receivables | $ 19,333 |
Transportation and exchange receivables | 44,169 |
Receivable from partners | 2,255 |
Natural gas inventory | 10,182 |
Property, plant, and equipment, net | 927,053(1) |
Other assets | 16,881 |
Total assets | $ 1,019,873 |
LIABLITIES |
|
Accounts payables | $ 14,567 |
Transportation and exchange payables | 28,277 |
Accrued liabilities | 48,348 |
Other liabilities | 6,377 |
Total liabilities | $ 97,569 |
(1)
Net property, plant, and equipment includes land of $712, pipeline facilities of $861,661, working gas and base gas of $93,635, computer hardware and software of $13,832, construction in progress of $43,464, and accumulated depreciation of $(86,251).In accordance with the Purchase and Sale Agreement between EKLP and TGT Pipeline, LLC (the "Agreement"), TGT Pipeline, LLC, has assumed all contingent liabilities related to the pipeline business. Management has made customary representations and warranties in the Agreement regarding contingent liabilities and other matters related to the pipeline business. All representations and warranties made in the Agreement are in effect until nine months after the closing date, and the purchase price will be adjusted if aggregate losses actually incurred by the buyer exceed 2% of the Base Purchase Price and in no event shall EKLP's aggregate liabilities exceed 10% of the Base
Purchase Price. Management does not anticipate, and no provision has been made in these financial statements for, subsequent payments under these indemnification provisions in the Agreement.
In addition, each party under the Agreement is allowed time to evaluate the final working capital calculation used to determine the Base Purchase Price. TGT Pipeline, LLC's period for evaluation expired on February 28, 2005, after which EKLP has 45 days to continue its evaluation. TGT Pipeline, LLC, has identified a $4.2 million adjustment to the Base Purchase Price. EKLP disagrees with the adjustment and continues to assess a resolution. The Agreement provides for mediation if a resolution cannot be reached. Any changes in the working capital adjustment will result in adjustment to the Base Purchase Price. No provision has been made in these consolidated financial statements for this disputed item.
9. Senior Notes and Credit Facilities
The Partnership's debt is summarized as follows:
December 31 |
||
2004 |
2003 |
|
(In Thousands) |
||
Short-term debt: | ||
Entergy - Koch, LP Credit Agreement (364-Day) | $ - | $ - |
Entergy - Koch, LP Credit Agreement (Five-Year Term) | - | - |
Entergy - Koch Trading, LP Margin Facility Agreement | - | 25,000 |
Entergy - Koch Trading, Ltd. Short-Term Revolving Facility | - | 7,337 |
Notes payable - credit facilities | $ - | $ 32,337 |
Long-term debt: | ||
Entergy - Koch, LP 3.65% Senior
Notes due 2006, net of discount and including fair value adjustment |
$ - | $ 202,408 |
Entergy - Koch, LP 6.90% Senior
Notes due 2011, net of discount |
- | 299,313 |
Senior notes (net of discount) |
$ - | $ 501,721 |
Short-Term Debt
EKLP historically maintained two primary credit facilities to manage its short-term cash requirements: a 364-day credit facility and a multi-year credit facility. In addition to these two facilities, Entergy - Koch Trading, LP, and Entergy - Koch Trading, Ltd., had short-term credit facilities for additional liquidity.
On December 19, 2003, EKLP renewed its 364-day credit facility with total commitments of $230 million. This facility included the ability to issue up to $75 million of letters of credit within the total commitment of $230 million. This facility was terminated and all commitments and obligations under this agreement were released on November 1, 2004, in conjunction with the sale of the Trading Assets to MLCI. At December 31, 2003, no loans or letters of credit were outstanding under this facility.
On February 1, 2001, EKLP entered into a multi-year credit facility with total commitments of $105 million. This facility included the ability to issue up to $105 million of letters of credit within the total commitment of $105 million. At December 31, 2003, no loans were outstanding under this facility and $3.9 million in letters of credit were outstanding. This facility was terminated and all commitments and obligations under this agreement were released on November 1, 2004, in conjunction with the sale of the Trading Assets to MLCI. At the time of termination, EKLP had $4.48 million in letters of credit outstanding. EKLP entered into a collateral agreement under which cash was posted to fully collateralize the outstanding letters of credit until the credits could be returned and terminated. At December 31, 2004, no collateral had been returned, but EKLP expects to have all letters of credit terminated and the cash collateral returned by March 31, 2005.
On September 25, 2003, EKT US entered into a 364-day credit facility with a total commitment of $25 million. This facility was used solely for the purpose of financing a portion of the Partnership's margin requirements related to energy trading. Advances under the facility would bear interest at LIBOR plus 0.75%, and the Partnership was required to pay a facility fee at a rate of 0.125% per annum on the total commitment regardless of usage. As of December 31, 2003, $25 million was outstanding under this facility at a weighted-average interest rate of 1.85%. This facility expired on September 23, 2004, and was not renewed.
On December 1, 2003, EKT Europe entered into an uncommitted short-term credit facility with a limit of 10 million British pounds. Advances under the facility would bear interest at the bank's cost of funds plus 0.75%. As of December 31, 2003, loans in the amount of 4.1 million British pounds ($7.3 million) were outstanding at a weighted-average interest rate of 1.84%. This facility expired on April 24, 2004, and was renewed. In conjunction with the sale of the Trading Assets to MLCI, all rights and obligations were assigned at closing to MLCI.
Long-Term Debt
On August 21, 2003, EKLP issued $200 million of senior unsecured notes at 3.65%, due August 20, 2006. These senior notes were offered at a discounted issue price of 99.955%, resulting in an effective interest rate of 3.67%.
On July 24, 2001, EKLP issued $300 million of senior unsecured notes at 6.9%, due August 1, 2011. These senior notes were offered at a discounted issue price of 99.698%, resulting in an effective interest rate of 6.92%.
In conjunction with the sale of the Trading Assets to MLCI, a tender offer was made for the full amount of outstanding notes. At December 31, 2004, all notes had been tendered or redeemed as provided for in the debenture, and EKLP no longer has any obligations outstanding under the debentures. EKLP recognized a loss of $60.2 million as loss on extinguishment of debt in the consolidated statements of income due to the early retirement of these notes.
Other Credit Facilities
On October 31, 2003, EKT Europe entered into a 364-day credit facility with a commitment of 40 million British pounds. At December 31, 2003, letters of credit/bank guarantees in the amount of 19.3 million British pounds ($34.6 million) were outstanding. This facility expired on October 29, 2004, and was not renewed. There are no further obligations outstanding under this facility.
On December 1, 2003, EKT Europe entered into an uncommitted short-term credit facility with a limit of 25 million British pounds. At December 31, 2003, letters of credit/bank guarantees in the amount of 15.1 million British pounds ($27.0 million) were outstanding. This facility expired on April 24, 2004, and was renewed. In conjunction with the sale of the Trading Assets to MLCI, all rights and obligations under this agreement were assigned and transferred to MLCI effective with the closing of the sale.
10. Commitments and Contingencies
Purchase Agreement Indemnifications - In the purchase agreements for the sale of Trading Assets and Gulf South, EKLP has agreed to indemnify the respective purchasers for certain potential losses relating to any breaches of the sellers' representations, warranties and obligations under each of the purchase agreements. EKLP does not expect any material claims under these indemnification obligations, but to the extent that any are asserted and paid, subsequent adjustments to the realized gains on these sales will be required.
Litigation - The Partnership is party to various legal actions arising in the normal course of business. Management believes that the disposition of outstanding legal actions will not have a material adverse impact on the Partnership's consolidated financial position.
Environmental and Other Indemnification Matters - Koch Energy, Inc., indemnified the Partnership for all known environmental liabilities as of February 1, 2001, arising from conditions existing or events occurring at Gulf South prior to the inception of the Partnership. In addition, Koch Energy, Inc., and affiliates of Entergy have indemnified the Partnership for any unknown environmental liabilities that occurred prior to February 1, 2001, related to the respective assets contributed to the Partnership by such parties, which are identified before the tenth anniversary date of the Partnership's formation. Any such environmental liabilities first identified prior to the sixth anniversary date are subject to a $50,000 per event deductible while those first identified after the sixth anniversary date but before the tenth anniversary date are subject to a $1.0 million per event deductible.
All environmental liabilities arising from the operations of the Partnership subsequent to January 31, 2001, are the obligation of the Partnership. Koch Energy, Inc., and affiliates of Entergy have also agreed to indemnify the Partnership for all other losses and expenses the Partnership incurs in connection with any claim, litigation, or suit arising prior to the Partnership's formation out of the operations of the Partners' respective businesses or assets that the Partners contributed to EKLP.
In connection with the sale of Gulf South, this indemnification, as it related to the pipeline operations, was terminated and a $5.4 million payment was made to Gulf South from a Koch subsidiary for the indemnification release. EKLP does not anticipate any additional future losses in excess of $5.4 million related to these environmental matters.
Regulatory Matters - EKLP is subject to regulation by various federal, state, and local government agencies and from time to time receives formal and informal requests for information from such agencies.
As an indirect partially owned subsidiary of Entergy, a registered holding company under the Public Utility Holding Company Act of 1935 (the "1935 Act"), EKLP generally must comply with certain requirements established in the 1935 Act, as well as rules and orders issued by the Securities and Exchange Commission under the 1935 Act that are applicable to investments by Entergy in non-utility companies.
At the federal level, the Federal Energy Regulatory Commission ("FERC") regulates certain activities of EKT US regarding energy commodity transportation and wholesale trading. EKT US is also subject to certain aspects of the jurisdiction of the Commodity Futures Trading Commission ("CFTC").
Commodity Futures Trading Commission Matter - On March 26, 2003, the FERC published a "Final Report on Price Manipulation in Western Markets," focusing on gas and power activity in California. EKT US was listed in the FERC report among the entities that had allegedly engaged in so-called "wash trading" in the gas markets with respect to 61 pairs of trades. In addition, EKT US received a subpoena from the CFTC seeking certain information about its gas and power business, relating to so-called "wash trades," and about information furnished to energy industry publications. EKT US also received a document request in connection with an informal inquiry by the Securities and Exchange Commission (the "SEC") relating to so-called "wash trades."
On January 28, 2004, the CFTC approved an order settling the administrative action relating to the CFTC's investigation. EKT US agreed to pay a civil penalty of $3 million without admitting or denying the CFTC's findings and recorded a liability for such amount as of December 31, 2003, which was paid in full in February 2004. The order cites EKT US for reporting false price information. There were no findings of price manipulation, attempted price manipulation, or wash trading made against EKT US or the Partnership. The order requires EKT US's continued cooperation with the CFTC. The CFTC notified EKT US that this settlement concluded the issues that were subject to their investigation.
Cornerstone Matter - On August 18, 2003, Cornerstone Propane Partners, LP, filed suit against EKT US and other entities on behalf of a putative class of persons who purchased and/or sold natural gas futures and options contracts on the New York Mercantile Exchange ("NYMEX") between January 1, 2000, and December 31, 2002. On November 14, 2003, Dominick Viola filed a similar complaint, naming EKT US. On November 25, 2003, the District Court for the Southern District of New York consolidated these cases with two other cases, neither of which named EKT US as a defendant. On January 20, 2004, the plaintiffs filed a consolidated class action complaint that alleges violations of the Commodity Exchange Act including manipulation (Section 9(a)), wash trades (Section 4c), and aiding and abetting violations of the Act (Section 22(a)). The defendants including EKT US filed a joint motion to dismiss this consolidated complaint on February 19, 2004. On September 24, 2004, the court denied the joint motion to dismiss. Discovery has commenced. Plaintiffs filed a Motion for the Class Certification on January 25, 2005. Defendants' Motion in Opposition to Class Certification is due on March 25, 2005. The outcome of this litigation cannot be determined at this time. Consequently, it is not possible to assess the impact, if any, of this action on EKT US. EKT US intends to vigorously defend this action.
Northern Illinois Gas Company Matter - On November 12, 2002, the SEC issued a subpoena requesting that Koch Industries, Inc., produce certain documents and information concerning business activities with Nicor, Inc. ("Nicor"). On November 22, 2002, the Partnership submitted to the SEC a limiting letter that, among other things, clarified that the entity that had the business relationship with Nicor was EKT US. EKT US is cooperating with the SEC and the U.S. Attorney's office in this matter and has produced documents and information in response to the subpoena. The SEC's inquiry regarding Nicor is ongoing, and the outcome or timing of this matter cannot be predicted. Other federal governmental authorities that are also investigating Nicor may be focusing on its business relationship with EKT US.
Proceedings have been underway since 2002 before the Illinois Commerce Commission (the "ICC") concerning Nicor that appear to be examining, at least in part, its business relationship with EKT US. EKT US has received certain requests for documents and information in that proceeding and in connection with a civil action in Cook County, Illinois, in which Nicor sought declaratory relief and specific performance. That action has been settled. Other governmental authorities in Illinois are participating in the ICC proceedings and may themselves have authority to conduct their own investigations into these matters.
On May 19, 2004, Nicor filed under seal a Verified Complaint against EKT US in Circuit Court of Cook County, Illinois, Chancery Division. The Complaint sought production of certain records that Nicor claimed were necessary to verify the accuracy of payments it made to EKT US pursuant to certain contracts between them. Nicor further asked for an accounting between the parties. The Complaint did not include a claim for damages. On July 16, 2004, the Circuit Court entered a Protective Order and a Dismissal Order, dismissing the Complaint in part with prejudice and in part without prejudice, while retaining jurisdiction to enforce or modify the Protective Order entered along with the Dismissal Order. On August 3, 2004, the parties, following extensive negations, entered into an Order modifying the terms of the Court's prior Protective Order. As before, however, the case was dismissed, in part without prejudice and with the Court retaining the right to enforce or modify its Protective Order. To date, no enforcement proceedings have been initiated against EKT US.
On August 25, 2004, the CFTC issued an informal request that EKT US produce certain information and preserve records that are related to any asset optimization agreement entered into between EKLP and/or IMD Storage and Transportation Asset Management Company ("IMD") and any third party. In 1998, Koch Energy Trading, Inc. ("KET"), a predecessor of EKT US, acquired a 50% ownership share in IMD. In 2000, KET increased its existing stake in IMD to 100% by acquiring the remaining ownership interest. The assets of KET, including IMD, subsequently became part of EKLP in February 2001. On September 13, 2004, a formal order of investigation was issued. The CFTC clarified the scope of its informal request and requested that EKT US produce information as part of an investigation related to EKT US's and/or IMD's trading activities with Nicor and Public Service Enterprise Group through December 31, 2002. EKT US is cooperating with the CFTC and is providing the requested information and preserving the referenced records. No enforcement proceedings have been initiated against EKT US or any of its affiliates.
Illinois Commerce Commission v. Entergy-Koch Trading, L.P. - On November 22, 2004, the Illinois Commerce Commission ("ICC") filed an Application to Compel Attendance of Witnesses and the Production of Tape Recordings and Documents ("Application") against EKT US in the Circuit Court of Cook County, Illinois. The Application seeks the production of certain tape recordings and documents sought by Nicor as specified in a subpoena issued by the ICC in June 2004 pursuant to Nicor's request in an ICC proceeding to which EKT is not a party. The Application does not seek monetary damages. On February 1, 2005, the Court denied EKT's motion to dismiss the Application on jurisdictional grounds. EKT US is pursuing as appeal of that ruling. EKT's answer to the Application is due on February 22, 2005. No discovery has occurred in the case. No enforcement proceedings have been initiated against EKT US or any of its affiliates.
City of Tacoma v. American Electric Power Service Corporation, et al - On June 7, 2004, a complaint was filed in the U.S. District Court for the Western District of Washington in which Koch Energy Trading, Inc., a predecessor of EKT US, was named as a defendant along with approximately 55 other entities. The complaint relates to power trading in California in 2000 and 2001 and seeks damages under the Sherman Act.
On August 20, 2004, the judicial Panel on Multidistrict Litigation issued a Conditional Transfer Order, transferring the case to the Southern District of California to be assigned to Judge Robert H. Whaley and to be consolidated or coordinated with the other cases involved in the In re California Wholesale Electricity Antitrust Litigation, MDL No. 1405. Plaintiffs have represented that two of the suits in front of judge Whaley have been dismissed and are now on appeal to the Ninth Circuit and that the remainder of the suits in front of Judge Whaley have been stayed pending the Ninth Circuit's decision on the dismissed cases. The defendant filed a joint motion to dismiss the complaint on December 9, 2004, which EKT US joined. On February 11, 2005, the Court granted the motion to dismiss and dismissed the lawsuit. It is not certain what the City of Tacoma will do in response to the Court's dismissal of the case. EKT US intends to continue to vigorously defend this action, if necessary.
Other - In addition, EKT US has received several formal and informal requests for information from various regulatory and governmental agencies in connection with the Partnership's gas and power businesses. At this point, the Partnership does not believe that these inquiries will result in a material impact on the Partnership.
Non-Cancelable Operating Obligations
Optimization Contracts - EKT is required to make specified minimum payment relative to optimizing certain customers' natural gas storage and transportation assets. For the years ended December 31, 2004, 2003, and 2002, approximately $54.2 million, $30.5 million, and $20.4 million, respectively, of these specified minimum payments were made. All optimization contracts were assigned to MLCI as part of the sale of Trading Assets to MLCI.
Operating Leases - EKLP has various noncancelable operating lease commitments extending through the year 2011. Most operating leases were assigned to MLCI and TGT Pipeline, LLC, as part of the sale of Trading Assets and Gulf South. Total operating lease expense for the years ended December 31, 2004, 2003, and 2002, were $5.0 million, $6.3 million, and $6.5 million, respectively. EKLP's remaining minimum future commitments related to these items as of December 31, 2004, are as follows (in thousands):
2005 | $ 180 |
2006 | 180 |
2007 | 180 |
2008 | 180 |
2009 | 180 |
Thereafter | 195 |
Total | $ 1,095 |
11. Related-Party Transactions
EKT US was a party to an electric power purchase and sale agreement with an Entergy affiliate to provide various energy risk management services. For the years ended December 31, 2004, 2003, and 2002, EKT US received $2.3 million, $3.5 million, and $3.9 million, respectively, from the Entergy affiliate as reimbursement for the resources needed to provide these services.
EKT Europe was party to an energy management agreement with Entergy affiliates whereby EKT Europe provides various risk management services for the Entergy affiliates. For the year ended December 31, 2002, EKT Europe received $0.9 million from the Entergy affiliate as reimbursement for the resources needed to provide these services. This agreement has expired in 2003, and the amount received by EKT Europe for the year ended December 31, 2003, was immaterial.
At December 31, 2004, the Partnership did not hold any assets and liabilities from trading activities relative to transactions with Entergy and Koch affiliates. At December 31, 2003, included in assets and liabilities from trading activities are assets of $15.5 million and liabilities of $8.7 million relative to transactions with Entergy and Koch affiliates.
Included in the net gain from trading activities for the year ended December 31, 2004, are affiliate revenues of $378.2 million (1.8% of trading revenues), affiliate cost of sales of $79.5 million (0.4% of trading cost of sales), and net realized affiliate gain of $11.4 million from financial instruments. Included in the net gain from trading activities for the year ended December 31, 2003, are affiliate revenues of $538.6 million (2.3% of trading revenues), affiliate cost of sales of $188.2 million (0.8% of trading cost of sales), and net realized affiliate loss of $17.7 million from financial instruments. Included in the net gain from trading activities for the year ended December 31, 2002, are affiliate revenues of $434.0 million (2.7% of trading revenues), affiliate cost of sales of $424.4 million (3.2% of trading cost of sales), and net realized affiliate loss of $9.0 million from financial instruments.
EKLP has a building operating lease agreement with Entergy and Koch extending to the years 2014 and 2011, respectively. The Partnership had related rent expense of approximately $2.6 million, $4.0 million, and $3.1 million for the years ended December 31, 2004, 2003, and 2002, respectively.
Gulf South had trade receivables with an affiliate, Entergy, in the amounts of $0.6 million as of December 31, 2003. Gulf South provided transportation and storage services to Entergy and related companies in the amount of $7.2 million, $7.7 million, and $8.1 million for the years ended December 31, 2004, 2003, and 2002, respectively.
Additionally, the Partnership purchased information technology services from a Koch affiliate in the amount of $10.2 million, $11.2 million, and $12.0 million for the years ended December 31, 2004, 2003, and 2002, respectively.
Included in receivables from Partners at December 31, 2003, are amounts related to certain incentive compensation obligations that existed prior to the formation of the Partnership. Such amounts were fully reimbursed in 2004 by the Partners.
See also Note 12, "Partners' Capital," for indemnification provided by Entergy.
12. Partners' Capital
Pursuant to the Partnership Agreement, one of the limited partners made a contribution of $72.7 million in January 2004. The equivalent amounts were distributed to the remaining limited partner. In addition, in January 2004 certain assets of the Partnership were revalued to measure the economic impact to the Partners at this date. Such revaluation did not have any effect on the historical cost basis consolidated financial statements of the Partnership.
In 2002, EKLP had a contractual dispute with a counterparty, and the resulting loss was indemnified by Entergy. In connection with the indemnification, the Partnership recorded a receivable from Entergy of $32.8 million and a corresponding contribution to capital in the accompanying consolidated statement of changes in partners' capital as December 31, 2002. The $32.8 million was paid by Entergy to the Partnership on February 7, 2003. As part of the indemnification arrangement, beginning in January 2003, Entergy is entitled to all the benefits and detriments associated with the contractual agreements with the counterparty, and as a result, EKLP had a $2.3 million receivable (included in receivables from affiliated from Entergy at December 31, 2003). EKLP no longer services the power needs of the counterparty on behalf of Entergy.
13. Employee Retirement Plans
For its domestic operations, the Partnership established the Money Purchase Pension Plan, which is available to all active employees meeting certain minimum requirements. This plan is a defined contribution plan subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Under the terms of the plan, 4% of employees' base compensation is contributed to the plan.
For its domestic operations, the Partnership also established the 401(k) Retirement Plan, which is available to all active employees. This plan is a defined contribution plan subject to the provisions of the ERISA. Under the terms of the plan, employees may contribute a percentage of their annual salary, subject to Internal Revenue Service limits, with the Partnership matching 100% of the first 6% contributed by employees with over one year of service.
In December 2004, the Partnership transferred sponsorship of both the Money Purchase Pension Plan and the 401(k) Retirement Plan to Gulf South. Upon the sale of Gulf South, EKLP ceased to have any title, interest, or liabilities associated with either of these plans.
For its European operations, the Partnership established a Group Personal Pension Plan, which is available to all active employees and is managed by Scottish Equitable. Under the terms of the plan, employees can contribute from 2% to 5% of their base compensation on a pretax basis. The Partnership contributed from 3% to 8% of an employee's base compensation depending on the amount that the employee contributed to the plan. The Group Personal Pension Plan was held by EKLP's subsidiary EKT Europe, which was sold as part of the sale of the Trading Assets to MLCI.
For its employees' participation in these plans, the Partnership recorded expense for the years ended December 31, 2004, 2003, and 2002, of approximately $4.5 million, $4.5 million, and $4.4 million, respectively. Partnership contributions to the above plans are subject to vesting requirements.
14. Taxes
EKT Europe is subject to UK taxes. The net income before income taxes and cumulative effect of change in accounting principle attributed to European operations for the years ended December 31, 2004, 2003, and 2002, is $48.3 million, $20.6 million, and $9.8 million, respectively. The total income tax expense related to the net income before income taxes and cumulative effect of change in accounting principle that is attributed to foreign operations is $15.8 million, $4.5 million, and $3.7 million for the years ended December 31, 2004, 2003, and 2002, respectively. Such income tax expense amounts were reflected as current income taxes.
15. Accrued Liabilities
Accrued liabilities is summarized as follows:
December 31 |
||
2004 |
2003 |
|
(In Thousands) |
||
Accrued working capital adjustments related to the sale of the trading assets and Gulf South | $ 32,596 | $ - |
Accrued transaction and exit costs | 26,348 | - |
Accrued interest | - | 11,273 |
Other accrued liabilities | 8,102 | 75,955 |
Total accrued liabilities | $ 67,046 | $ 87,228 |